Small Business Tax Saving Strategies for the 2013 Filing Season

The Simple Stuff

• Understand Tax timing

• Get the big picture at totaltaxinsights.org

• Pay your estimated tax payments

• Have solid books

• Don’t be cheap: Capitalize on the value of tax planning often 3 to1 return

• If you cant pay still file

• Pick up all of your expenses

- Meals and entertainment

- Learning and education/Professional dues

- Mileage

- IT and Communications

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Contribute to Retirement

• 401(k)

• IRA

- Payroll Deduction IRA

- SEP

- Simple IRA

- Profit Sharing

• ** Refer to IRS Comparison Worksheet

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Planning for Retirement

• Variety of options, designed to fit your needs

- 401(k) allows flexibility; salary deferrals and/or employer contributions

- SIMPLE IRA and SIMPLE 401(k) are available only to small businesses; for SIMPLE 401(k), employer is required to contribute

- SEP is simple, inexpensive

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Expenses: Section 179 Deduction

• Expensing provision for certain business property

• Maximum $500,000 first-year

• Most tangible personal property eligible

- Computer, office furniture, vehicles and machinery, software

• Phaseout begins at $2 million

• Limits and exceptions

• Does not have to be cash can be credit/loan

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Expenses: Bonus Depreciation

• If 179 is not enough….

• First-year bonus depreciation allowance for eligible property

• 50% deduction for property placed in service in 2013

• Property eligibility requirements

• Benefits of using bonus depreciation:

- Immediate tax relief

- Improved cash flow

- Additional reinvestment capital

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Expenses: Start-up and Organizational Costs

• Start-up Costs

- Deduction in year business starts/succeeding years

- Can include full range of business investigatory costs

- First $5,000 in expenses deducted; the remaining is amortized over 180 months

- The deduction requires an election

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• Organizational Costs 

- Deduction for certain costsin creating C or S corporationor partnership

- $5,000 maximum

- Same rules as businessstart-up costs

- Certain legal and accountingfees

Small Business Health Insurance Credit

• 35% of premiums paid

• Must cover > 50% of health care

• Pay at least ½ of employees health insurance

• 10 or fewer FTE – Avg Wages < $25,000

Or

• 25 or fewer FTE – Avg Wages < $50,000

• Carryback/forward

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Choose the right entity at the right time

• Sole Proprietorship

• Partnership

• Corporation

• S-Corporation

• LLC

• Sole Proprietorship – most affordable, least fees, no protections, limited tax planning.

• Partnerships – unplanned complexity, simple as a handshake, always limited protections for someone.

• Corporations – double taxation

• S-Corporation – most opportunity for tax planning

• LLC – Simple to set-up, provides protection

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Home Office Deduction

• Simplified

• $5 per square foot up to 300 square feet

• Interest and property taxes in addition

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State taxes

• Debt forgiveness not extended

• California state income tax rate increased

• California Enterprise Zone going away December 31, 2013.

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• Up to $37,440 per eligible employee over a 5-year period

• Employees can be full-time, part-time, or seasonal

• Employees must work in the Enterprise Zone at least 50% of the time

• Our sister company assists with claiming this tax credit

04/10/23

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Tax Credit Example: Hiring Credit

Important Tax Rule: Corporation Built-in Gains

• No net built-in gains tax on certain property

• If sold more than 5 years after conversion from C corporation to S corporation

• Special rule for 2011 – normally 10 years

• Reduced taxes and additional investment capital

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Planning for Net Operating Losses

• NOL deduction available when current year’s income is less than current year’s deductions

• NOLs can be carried back 2 years and forward 20

• Planning required to maximize deduction

• NOL versus Section 179 deduction

• NOL versus bonus depreciation

• Many businesses have large NOLs generated during economic downturn. Proper planning will insure best tax result so that NOL benefits are not allowed to expire.

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Planning for Business Succession

• Critical to start now – need to have plan for unexpected events

• Significant impact if a principal owner/ partner suddenly leaves or dies

• Several strategies available to finance a smooth transition

• Sources of financing can include:

- Life insurance

- Buy-sell agreement

- Grantor trust

• Best plan should fit structure of company, personal preferences & needs

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Key Takeaways

• CPA-small business owner partnership

• CPA advice

• Year-round tax planning

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We are a full service CPA firm.

Let us know how we can help.

www.mbsaccountancy.com

(559) 421-7033