Tax Planning Part 2

Jan 03

Remember – for the tax benefits alone, it’s worth starting a small business… regardless of the size or profit made in the first two years.

For this reason, we have created several items to help you identify some common business expenditures that are tax deductible and beneficial to your tax reduction plan so that you can maximize your deductible expenses and recognize the importance of a pre-tax plan. These items include a list of business tax planning tips, focusing on ways to maximize your deductible expenses, along with things to avoid.

As you operate your activity as a business, not as a hobby, to maximize your deductible expenses, keep in mind that you should:
– Show a profit three out of five years to qualify for continuing excess tax deductions
– Convert your personal assets in your small business and make them tax deductible
– Hire your children or grandchildren and pay them tax-deductible wages instead of giving gifts & allowances
– Hire your non-working spouse to work in the business and open an Individual Retirement Account (IRA) to create a $1,750 deduction each year
– Use your automobile in the business to create deductions through asset expensing, depreciation, gas, repairs, insurance, parking and interest
– Set up a business-related retirement plan as soon as your business becomes profitable
– Develop a comprehensive tax plan by first learning the rules & regulations of the Internal Revenue Service (IRS) and how they relate to your business
– Never wait until the tax filing deadline to determine your plan of action; develop your tax plan today
– Qualify for the home office deduction by designating a portion of your home – using it exclusively and regularly as a principal place of business where you spend more than half your work hours
– Keep IRS records for seven years
Familiarize yourself with depreciation & asset expensing, and in which circumstances to use either method – for maximizing the deductible amount for which you are eligible
Additionally, make sure to avoid:
– Excessively high travel, meal, & entertainment expenses
– Excessively high vehicle mileage
– Higher depreciation expenses than others in your line of business
– Failure to report all income
– High undocumented charitable contributions (if your business is a C-Corporation)
– Tax shelters or high partnership losses
– Zero or minimal cash deposits in a business that receives cash
– Mathematical & clerical errors

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