Last minute tax tips

The good news is that paying taxes doesn’t have to be as painful a chore, thanks to recent changes in tax laws, which makes for a more business-friendly environment. The ideas listed below can actually  save taxes for small auto parts businesses in a meaningful way, and in some cases make those businesses more efficient and technologically updated at the same time.

1. Section 179. Recent changes to the tax law allow profitable businesses to deduct as expenses up to $100,000 worth of qualified assets that would otherwise be required to be depreciated. There are some “phase-out” limitations, but upgrades of computers and equipment can be fully deductible in many cases.
2. Bonus Depreciation. Profitable or not, the 2003 Tax Act provides bigger depreciation deductions for many business assets. The previous 30 percent first-year “bonus depreciation” allowance for qualified assets was raised to 50 percent.  And, certain leasehold improvements can qualify for the additional expenses, not just equipment and fixtures, etc.
3. Buy a ‘heavy’ vehicle. Consider buying a truck or SUV instead of a car. You may be able to deduct the full cost of certain vehicles with a Gross Vehicle Rating over 6,000 pounds. The deduction can equal the entire business portion (must be over 50 percent business usage) of the vehicle’s cost (up to $100,000) by claiming a Section 179 deduction (see above). Many popular vehicles like the Hummer and Ford Excursion are on the list of allowable vehicles. A more complete list is available on our website at www.rchcpa.com.
4. Keep it in the family. Hire family members (like your children) and earn extra deductions. They can perform chores such as answering the phone, other administrative duties or even emptying the trash and you can deduct their reasonable compensation. One of the key advantages to hiring your children is that you will save on payroll taxes, if the children are under the age of 18.
5. Save for the future. Set up a retirement plan. All the wrangling over Social Security should make it clear. The system might not pay you the kinds of benefits that your parents received when it comes time for your own retirement. There are now expanded options and choices that make it more favorable to start your own Keogh or other retirement plan, whether or not you have employees.
6. Take advantage of lower brackets. If you are a traditional C-Corporation, you will only pay 15 percent (plus any state rates) Federal tax on the first $50,000 of taxable income. For businesses that need to accumulate capital for expansion or upgrades, this is a reasonable option, especially when individual tax rates could be higher if you use another business form.
7. Check your state for credits. Different states have different tax credits and other breaks for new and expanding businesses. Check with your own state’s revenue department or business development council to find out what  breaks your particular legislature has enacted that will let the government share part of the financial burden of starting or continuing to make your business grow.
8. Chose your accounting method carefully. Often overlooked is the method of accounting a business uses. With the cash method of accounting, you record income only when you receive cash from your customers. You record an expense when you pay the vendor. Most individuals use the cash method for their personal finances. However, this method can distort your income and expenses, especially if you extend credit to your customers, if you buy on credit from your suppliers or you keep an inventory of the products you sell. However, recent changes to the tax laws has made it possible to use the cash method even in cases where inventories are used, making it easier for small businesses to use the cash method, typically the preferred choice of small business. With the accrual method, you record income when the sale occurs, whether it is the delivery of a product or the rendering of a service on your part, regardless of when you get paid. You record an expense when you receive goods or services, even though you may not pay for them until later. The accrual method gives you a more accurate picture of your financial situation than the cash method. Each accounting method has its pros and cons. The cash method is easier to maintain because you don’t record income until you receive the cash, and you don’t record an expense until it is paid. With the accrual method, you will typically record more transactions and be more cognizant of accounts receivables and payables.

These are only some of the tips to consider as tax time nears. Review your situation to see which strategies can best impact your taxes.