Friday, December 17, 2010

Good Riddance to 2010: Tax Tips for the Close of the Year


     The holiday season—it conjures up thoughts of family and friends, fruitcake, champagne and resolutions.  For you small business owners, it also means the close of another tax year and the beginning of the April 15th panic.  In order to smooth the transition to 2011, Barbara Weltman for the Wall Street Journal offers some steps to complete before you watch the ball drop: 

       Bring your books up-to-date:  Before you can start tax planning, it is essential to know whether your business made or lost money this year.  This will also save you time come April 15th.
      
       Consider a retirement plan:  Ms. Weltman notes that profits may be sheltered in an IRS-qualified retirement plan.  For tips and ideas on whether you may qualify and what plan may be best for you and your business, talk to your accountant or financial advisor.  Remember—to get the benefit this year, the retirement accounts must be set up by December 31st.

       Health insurance:  Some business owners who pay for their health insurance may deduct it, but only as a personal expense and not a business expense.  However, for 2010, if you are self-employed you may use the premiums to offset the amount of net earnings used to calculate your self-employment tax.

Give to charity:  Charitable contributions are tax deductible within the limits allowed by law.  For owners of a C-corporation, charitable deductions are limited to 10% of taxable income.  For 2010, there is no phase-out of itemized deductions for high-income taxpayers.  This is limited to business owners who record business income on personal returns (e.g., owners of LLCs or S-corporations).  Check out IRS Publication 78 for information on whether your entity may qualify.

Upgrade equipment:  There are great tax options in 2010 for deducting or expensing new equipment.  If your business made money this year, you can elect first-year expensing for the cost of the equipment up to $500,000.  If your business lost money, you can rely on 50% bonus depreciation to  write off half the cost. 

To read Ms. Weltman’s entire article, visit www.wsj.com. 

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