Tax Savings Strategies for a Small Business
By Cristiana S. Baas, CPA / March 2012
With its drive for innovation and unwavering perseverance, the small business community continues creating the majority of new jobs in the country, employing more than half of private industry's workforce. Twenty-nine million small business owners personify the American dream and serve as the growth engine of the U.S. economy. Taking advantage of current tax law provisions can help strengthen your business and help minimize your tax bill.
The Section 179 expense deduction provides immediate tax relief on newly purchased equipment, benefitting cash flow and promoting investment by small businesses. The deduction applies to most tangible personal business property placed in service during 2011, including computers, office furniture, vehicles, and machinery. The deduction also is available for the cost of certain real property: qualified restaurant property, leasehold improvement property and retail improvement property.
For property placed in service before 2013, a special bonus depreciation allowance grants a larger deduction in the first year, with any remaining cost subject to regular depreciation rules in later years. Bonus depreciation allows business owners to deduct the entire cost of the property placed in service in 2011, and half of the cost of property placed in service in 2012.
The allowance generally applies only to new tangible personal property with a recovery period of twenty years or fewer.
Small business owners typically incur a wide range of costs in the launch of their business. In 2011, new businesses may deduct up to $5,000 of start-up expenses incurred during the tax year, with the balance amortized over 180 months, beginning in the month that the business was launched. The deduction phases out dollar-for-dollar in 2011, if costs are greater than $50,000.
Small business owners paying at least half of their employees' health insurance coverage may be eligible for a tax credit, which can reach 35 percent of the employer's contribution. To qualify, the employer must pay the equivalent of 25 or fewer full-time equivalent employees and average annual wages of less than $50,000. Small businesses with ten or fewer full-time equivalent employees and average annual wages of less than $25,000 can receive the full credit.
Increased penalties may be imposed for persons failing to file a correct and timely information statement with the IRS or who fail to furnish a correct and timely payee statement. Both penalties are now $100 per return and are capped at a certain amount, depending on the amount of the per-return penalty and the gross receipts of the business. The penalties may be waived for reasonable cause or increased in cases of intentional disregard.
Understanding the full range of the latest tax laws and correctly applying them can be a daunting task, especially when meeting new business demands and growing competition. Consulting a tax professional can ensure that you take full advantage of all the deductions to which you are legally entitled.
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