Find tax breaks for your business
Are you taking all the deductions you can?
(FORTUNE Small Business) -- Dear FSB: Are there any tax breaks for small businesses? If so, what are they?
-Bernard Brown, Port St. Lucie, Fla.
Dear Bernard: As Florida has no state income tax, any tax advantages for Florida small business owners would be on the federal level, according to Lynn Schmidt, a tax practitioner with Lynco Financial and Tax Services in Winter Haven, Fla.
Federally speaking, there are a wide variety of tax benefits for small businesses. Many depend on the type of business you own, says Tom Ochsenschlager, vice president of taxation at the American Institute of CPAs.
One of the most fundamental, but dramatic, is available to LLCs and corporations with S-status.
"If they're eligible, they only pay tax at the shareholder/owner level, as opposed to paying at the corporate level and again at the shareholder level to the extent that there are dividends distributed," Ochsenschlager said. "This way they avoid a double tax."
An often-overlooked tax benefit unique to small businesses, regardless of whether they are a corporation, partnership, or sole proprietorship, is Section 179 small business expensing, says Vicki Meyer, CPA, of Counsel Thomas Howell Ferguson PA in Tallahassee, Fla.
"This benefit was recently liberalized by the 2007 Small Business Act. In general, it allows a business to take a current deduction up to $125,000 for the cost of assets placed in service during the year for use in the business, not including real estate," she says.
Without this benefit, the business owner would need to capitalize the asset and deduct the cost over many years through a depreciation deduction. For example: if a small business purchased a copy machine for $2,000, the entire amount could be deductible in the first year. A larger business would be required to deduct the cost over five years, which is what the IRS considers the life of the asset, according to Meyer.
Small business owners may also take advantage of the home office deduction, which provides some savings but not a tremendous one, says Schmidt. She cautions: "You truly have to qualify. It can't just be that you use the dining room table for a few hours a day."
Other benefits to you as an employer might also serve to motivate your employees, according to Ochsenschlager. For example, retirement plans attract employees, and payments are deductible by the employer. Employers can help offset the cost of commuting by purchasing transit cards for employees: "They're not taxable to employees, but are deductible by employers," he says.
The same goes for educational assistance. Ochsenschlager says you can even get a deduction for the coffee you provide employees in the office - provided you make it.
Depending on the type of business you own, charitable contributions of inventory can result in a deduction. You won't get full market value, but you'll generally get cost plus one half the difference between what you paid and fair market value. You can only do this, though, if what you donate is used by the charity specifcally for its charitable function - for example, giving food to a food bank or books to a school.
These are just a few of the benefits small business owners might take advantage of. To make sure you're maximizing your small business status, consult a tax professional.
"Keep in mind the potential stimulus package before the federal government," says Jeff Berdahl, president of Berdahl & Co., PC in Center Valley, Penn. "Most likely, it will provide more benefits to small businesses."
What's your favorite small business tax break? Talk back in our forum.
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