It's time to start thinking about your small business taxes. There are steps you can take right now, before December 31, to lower your tax bill for 2010. If you expect to make a profit in 2010, this article is for you. If you expect to take a loss in 2010, this article is still for you as it will help you lower your tax liability in 2011 when things will be better. Let's take a look.
-
Section 179 Depreciation Deduction
If you need any business equipment, computing equipment or software, machinery, vehicles, or office furniture, now is the time to buy them. There is a $500,000 Section 179 deduction available for 2010. That means you can write off the full cost of those items, up to $500,000, if you put any of these items in use during calendar year 2010. You can only do this is your business is profitable during 2010. IRS Publication 946 discusses the rules and regulations for depreciation and Section 179 deductions. There is not a new Publication 946 yet for 2010, however.
There are two ways of deducting the cost of equipment for your business. You can use the $500,000 Section 179 deduction and hurry and buy what you need before the end of 2010. This will help substantially if your business is profitable in 2010. If your income is down, you may want to consider expensing the cost of the capital equipment over a period of years.
For 2010 only, you can expense half the cost of an asset now, even if your business is not profitable which will raise your net operating loss. You, then, can expense the rest of the cost of the assets you purchase over a period of years when tax rates may be higher.
-
Purchase a Vehicle for your Business
If you buy a business vehicle before the end of 2010, you can write off $11,060, which is much more than will be allowed in 2011. For new SUV's, the write-off is even higher at $25,000. Part of the cost is eligible for bonus depreciation.
-
Charitable Contributions
If your business itemizes deductions, and most do as they have to use IRS Schedule C, making charitable contributions before the end of the year will give you a valuable tax deduction.
The rules about making a charitable contribution of a vehicle are tough and complicated. The charity has to qualify and usually it has to be a 501(c)(3) organization, which is usually a religious, educational, or charitable organization. You have to itemize your deductions on IRS Schedule A in order to qualify for a deduction. The deduction cannot exceed 50% of your adjusted gross income.
You can even donate used vehicles that are no longer in service for your business. Rules include the fact that you can deduct only the fair market value of the vehicle, usually accompanied by a written appraisal and a written acknowledgment from the charity. A Donor's Guide to Car Donation will help you sort through the rules along with Publication 526, Charitable Contributions and Publication 561, Determining the Value of Donated Property.
Businesses can donate many other items. If your business is a sole proprietorship, you can donate personal items and put the donations and values on Schedule A. If you own any stocks that have made gains during 2010, you can donate shares of those stocks for the full market value, which lets you avoid any capital gains tax on your 2010 tax return. All charitable contributions must be made before the end of 2010. If your business did not make a profit this year, then try to save any contributions you may have until 2011.
-
Stock up on Office Supplies
Do you need office supplies? If your business was profitable this year, stock up before the end of 2010 because office supplies are an excellent deduction on Schedule C if you are a sole proprietor.
-
Set up a Retirement Plan
If you have not set up a retirement plan for you and your employees, now might be the time. You can set up a SEP IRA and contribute $49,000 to it in 2010. You don't have to make the contribution until you file your taxes, but you should get it set up in advance. IRS Publication 561 gives you guidance on setting up a retirement plan for your small business from a tax perspective.
-
Pre-pay your Health Insurance Premiums
If you are a sole proprietor, you can pre-pay the cost of your health insurance premiums for 2011 in 2010. This is a benefit for 2010 only.
-
When to Juggle your Income and Expenses into Next Year
If your business made a profit this year, you may want to defer whatever income you can into next year. That is particularly true if your business is a sole proprietorship, partnership, S corporation, or LLC. The 2010 scheduled federal tax rates are not much changed from this year's tax rates. It also makes sense, in this case, to accelerate expenses into this year if possible. Pay any bills your business owes early or make any credit card charges you need to make before the end of the year.
If your business is taking a loss in 2010, you will want to reverse this strategy.
Follow these tax tips before the end of 2010 and save your business some money when you file your 2011 taxes.
