Tax Saving Strategies For Business Owners
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Here are 7 interesting (and fun) ways to save even
more income taxes...
1.
IRA Funding
Trick
2. A Special
Retirement Plan
3. Make Your
Landlord Pay For Improvements
4. Deduct
Home Entertainment Expenses
5. Deduct
Holiday Gifts Without Receipts
6. Deduct
Your Home Computer
7. Have Your
Company Buy You Supper
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1. Did you know you can use your previously funded IRA to fund the current
year's deductible contributions? |
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Well, you can. If you don't have enough cash to make a
deductible contribution to your IRA by April 15th, here is how you can still
take the tax deduction. And have until June 12th to make the full 4,000
contribution! To get started, all you need is a previously started IRA. You begin by having $4,800 distributed to you from your
IRA on April 15th. Your bank is required to hold 20% (income tax withholding),
so you'll actually receive $4,000. Once you have the $4,000, immediately deposit
it back into your IRA. If you do this before April 15th, this counts as your
deductible contribution for the year. The best part of this is that you have 59
days to "make up" the withdrawal-or to be taxed. Simply deposit $4,800
"rollback" into the same IRA account by June 12th to avoid taxes on the original
$4,000 distribution made to you.
This is a type of short-term loan from your IRA to make
this year's deductible contribution before the April 15th due date.
NOTE: Not all banks realize it is required to withhold the
20% from the original $4,800 withdrawn from your IRA. Call to find out which way
we can help you work with this "extra" amount. There are many options, so get
informed before you miss out on the full benefits of your retirement plan.
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2. We have a special retirement plan for you if you are self-employed and
involved in more than one business. |
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This is for you if you are self-employed and involved in
multiple businesses, even with partners. A new tax act has made a change allowing you to contribute
to a self-employed retirement plan, on your own behalf, without requiring you to
make contributions on behalf of your employees. The new act has repealed the
so-called aggregation rules that previously applied to the self-employed
retirement plans.
Under the old rules, if a self-employed person owned, or
was a part owner of more than one business, and a retirement plan was provided
for the employees in one business, law required that a retirement plan be
provided for the employees of the other business(es). Beginning in 1997, this
law removed this requirement!
If you own two businesses, the law allows you the option
of establishing a retirement plan for only one business (with the fewest
employees), even if you work by yourself in that business! The only limitation
for this new law is that the amount of money you can contribute to a retirement
plan is based on the self-employment earnings generated by the business with the
retirement plan.
In other words, if the business you own with (no
employees) has smaller net earnings than the other business (with employees),
the amount you can contribute to a retirement plan will be based on the smaller
net earnings.
While the rule change allows you to avoid contributing to
a plan for your employees, it also means that you would be limited to making the
smallest (rather than the largest) potential contributions to your personal
retirement plan.
We want to make sure you are getting the most out of your
financial future, so contact us to determine your eligibility and to optimize
the plan for you.
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3. You can have your landlord pay for leasehold improvements at your place of
business. |
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Instead of paying for leasehold improvements at your place
of business, you can ask your landlord to pay for them. In return, you offer to
pay your landlord more in the rent over the term of the lease. By financing your
leasehold improvements this way, both you and your landlord can save money on
taxes. Ordinarily, you must deduct the cost of leasehold
improvements made to your place of business in an even fashion (over a 39-year
period!). If the year your lease term ends you move to another location, you can
deduct the portion of the improvement cost you have not previously deducted.
This normal scenario won't save you tax in the earlier years of the lease. Your
landlord will have to put up the initial cash for the improvements, but you will
cover that over time with increased payments in your rent. Since your landlord
will be paying for the improvements, you will save tax early in the lease and
your landlord will benefit as well!
During the same time, your landlord will gain depreciation
deductions for the cost of the leasehold improvements. When you leave, your
landlord will still have the improved property to offer other future tenants. It
is a great opportunity for a win-win situation giving you faster access to
invested monies.
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4. Save by deducting home entertainment expenses. |
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You may not be able to treat your employees to meals at
expensive restaurants or offer them season tickets, but you should deduct
expenses for entertaining clients at home. There are two basic kinds of entertainment expenses. The
first being direct entertainment expenses and the second is associated
entertainment expenses.
If you entertain at home for the purpose of business, and
if the business takes place during the entertainment, then the cost of
entertaining at your home is deductible as a direct entertainment expense.
However, if the entertainment occurs immediately before or after a business
meeting, the cost is deducible as an associated entertainment expense. These
expenses are 50% deductible.
Many businesses are already enjoying this wonderful type
of deduction and are benefiting from it with a more social climate for
conducting their business.
Ask us about your options concerning this fun deduction.
You might be pleasantly surprised about what you have been missing!
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5. You can deduct $25 Holiday gifts to associates even without a receipt! |
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When you prepare your income tax return, don't overlook
the deductible benefit of holiday gifts. Whether you are a rank-and-file
employee, a self-employed individual, or even a shareholder-employee in your own
corporation, you can deduct the cost of gifts made to clients and other business
associates as a business expense. You can do this any time of the year. The
limit of the deduction is set at $25 in value for each recipient for which the
gift was purchased with cash. A few years ago, the Tax Court allowed an independent
salesperson to deduct gifts to buyers, even though the buyers' employers
prohibited the acceptance of such gifts. The Tax Court felt the gifts were not
bribes but were a legitimate business expense. Because the gifts were small
(less than $25, but totaling more than $2,000!), the taxpayer was not required
to document the cash expenses with receipts. The entries in the salesperson's
daybook was acceptable proof.
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6. Deduct your home computer. |
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This is an approach for saving more on your income tax
return for people who purchase a computer and use it for work-related purposes.
A recent Tax Court ruling may give you a tax deduction on your home computer. If
you are an employee and want to deduct your computer, you first have to meet the
requirement stating that the computer is used for convenience and as a condition
of your employment. As a result of the Tax Court ruling, if your employer limits
your access to a computer at work (for security reasons) but still requires that
the work be completed, then you can deduct the portion of the cost of your
computer that is allocable to business use. It is important that you ask us if you qualify for this
deduction.
Please call us for more information concerning this
opportunity.
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7. Have your company buy you supper. |
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If you are in a partnership or a shareholder-employee in a
regular C or S corporation, and you have to work overtime, your company can, on
occasion, provide you with dinner. The cost of such a dinner is 100% deductible
for your company, and you don't even have to pay personal income tax on the
value of the meal! On top of this, your company does not have to provide this
fringe benefit to other employees who work late. But your company does not have
to directly pay you for the meal. Instead, it can provide you with supper money.
In order for this to work, the amount of dinner money has to be reasonable.
If the IRS decides that the amount of money you received
was unreasonable, the whole amount will be considered taxable personal income
and will not be deductible.
We will be glad to answer your questions concerning
deductible dinners and any other questions you have, so call today so we can
help you start with this Section 132 "de-minimis" fringe benefit.
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