Is there a recession? No one knows for sure, but now is always a good time to make sure your small business is making the most of its tax savings. Robert Ellis, CPA, Principal of Ellis CPA Firm PC offers the following eight tax savings tips.
Warning: Don’t try this on your own. Every one of these ideas requires the assistance of a professional adept at the particular issue. Attempting it on your own may get you in trouble with the authorities for minor infractions.
- Hire your spouse. This opens up a wealth of new deductions you probably haven’t even thought of.
- Hire your children. Depending on your form of business, it is possible to pay them more than $5,000 a year for helping in your business, completely deductible to you, but not taxable to your children.
- Instead of taking a home office deduction, which reportedly is audit bait, reimburse yourself for the use of the expenses incurred using your home for business purposes. This doesn’t require dedicated usage and avoids the nasty depreciation recapture down the road.
- Lease your business car. Regulations on leasing allow bigger deductions than buying.
- If you have medical issues in your family, break your business up into various entities, one of which is a C corporation. This allows the use of a medical reimbursement plan and converts medical expenses to business expenses.
- Under certain circumstances, doing business as an S corporation can save on Social Security and Medicare taxes.
- Take the time to learn exactly what expenses are deductible. Section 162 says ALL expenses that are ordinary and necessary are deductible. Take the time to learn what that means and who decides what is ordinary and necessary. (It isn’t the government, it’s you.)
- Last but not least. When you get the review copy of your 1040 individual tax return, examine it closely. If your taxable income (line 43) exceeds the amount you parked during the year plus a moderate amount for non deductible living expenses, you may be paying too much income tax. Your business record keeping is probably deficient, but review the return with your tax professional, and if necessary get a second opinion. Parking is a term that describes the amount of income diverted into investments, savings, bank accounts, homes, boats, cars, planes, jewelry and other toys, etc. during the year.
You can find out more about the Ellis CPA Firm PC here.