Small Businesses, Bite a Chunk Out of Your Taxes!
By Alan L. Olsen, CPA MBA (tax)
Greenstein Rogoff Olsen & Co. LLP
A tax savvy entrepreneur like yourself probably knows that maximizing your
deductible business expenses lowers your taxable profit. After all it is
how much money you have left in your pocket that sometimes matter. Here
are some deductions which may help you take a bite out of your taxes this year.
equipment. Businesses usually take
years to recoup the cost of equipment through depreciation deductions. Under
Sec. 179, however, a business can write off the full cost of equipment in the
year it is placed in service. This new small business law increased the maximum
deduction for the current year to $125,000 from $112,000. This new law also
applies for off-the-shelf software costs through 2010.
workers. The current Work
Opportunity Tax Credit (WOTC) could provide small businesses up to 40% of up to
$6000 of a qualified worker’s first year wages. Qualification for new hires
must be examined since the eligibility for WOTC has been expanded to include
more worker groups such as the hiring of disabled veterans. The WOTC has been
extended through August 31, 2011.
Aim at business
debtors. Businesses are urged to
increase their efforts to collect past-due amounts from customers to derive some
tax benefits. A debt that has become totally worthless in 2007 could be claimed
as a deduction this year. It should be noted that a business cannot deduct any
part of a bad debt after the year it has become totally worthless. Detailed
documentation of collection efforts such as letters, phone calls, emails, and
authorizations to debt collection agencies should be maintained to support
claims of debt worthlessness.
Sec. 199 of the tax code allows a
domestic producer to claim “manufacturing deductions.” To qualify for the
manufacturing deduction, the law qualifies that activities must be performed in
“significant part” in the United States. To satisfy this rule, a business’
labor and overhead costs for manufacturing, production growth and extraction
must be more than 20% of the total cost for the property. The maximum deduction
for 2007 is 6% of the lesser of taxable income from qualified production
activities or taxable income.
Business trips. Don’t forget to write off
business-related travel expenses in 2007 such as air fares, lodging, and 50% of
the cost of meals. Individuals travelling by car can write off the actual auto
expenses, including depreciation (IRS “luxury car” rules apply) or use the
standard 48.5 cents per business mile.
Minor repairs made before January 1, 2008
could be tax deductible. Repairs involve keeping a property in a normal
operating condition without adding appreciably to the property’s value or
prolonging its useful life. Individuals must be aware to clearly define repairs
from improvements (renovations), which tend to increase the property’s value and
prolong its useful life. Caution should be taken about making repairs and
renovation at the same time; instead, those should be spaced at least a month
heavy vehicles weighing more than 6,000 pounds, a business owner may be able to
write off up to $25,000 of the cost especially if that individual needs extra
room for hauling supplies or equipment. It is exempted from the IRS’ “luxury
car” rule which limits the first year deduction only to $3,060 for passenger
cars placed in service in 2007.