In Part 1, we laid out some ways to plan for a lower tax bill in 2009. If you haven’t seen Part I, check it out: End of Year Tax Tips For Small Business, Part 1.

Here are some more ideas for your business.

Pay Your Bills Now

Rent, utilities, insurance, advertising: these are all familiar expenditures for your small business. Many financial professionals recommend paying these bills early in order to save money on your tax returns. This deduction is also valid for employee bonuses – a kind year-end gesture that benefits your finances in the long term.

Get Up To Date With Tax Laws

Staying up to date with current tax laws is among the best ways to save the most money. After all, how can you do what’s best for your small business if you don’t know what the laws are? Consult with your CPA or financial advisor to find out the tax laws most relevant to your business.

Do you need a great CPA, financial advisor of bookkeeper? Contact us and we’ll refer you to someone.

You can also check out the IRS website for more information. They have a full list of qualified deductions that small businesses may claim. Many small business owners miss deductions through ignorance of the law. Keeping current will rectify any omissions and benefit your business.

Here’s an IRS Article on Business Expenses.

Here’s some final advice.

Make sure you have receipts for every transaction you wish to deduct on your tax return. Keeping receipts makes bookkeeping a snap, and will be a life-saver if you should ever have a visit from the tax man.

So then, doesn’t this sound like a fun way to spend the last two weeks of December? Turning away from holiday festivities to work on your business may seem Scrooge-like, but it really is a great way to get a ready for a prosperous 2010!

Share on Facebook

Small business owners of the world: congratulate yourselves on making it to the end of a tough financial year! Your business is still afloat, still running, and still profitable despite the gloom and doom we’ve all suffered through the last 12 months.

And there’s even more good news: we’re going to tell you about a few ways you can save money on your taxes.

Our end of the year tax tips have more to do with timing than than income level, which makes them perfect, across-the-board strategies for all types of small businesses. Using just one of these tips might save you serious money in the long run.

What You Need To Know

Every dollar spent, earned, and saved before January 1st is the business of the IRS come April 2010. Planning is everything. Getting a head start on preparations for tax day is a great way to tie up loose ends while maximizing savings for your business.

The most basic thing a small business can do to get ready for tax day is organize the books and update accounts to reflect the most current data. Doing so will give owners a clear idea of what they’ll be paying in 2010.

If you need help finding a great CPA or bookkeeper, contact us. We’ll refer you to someone perfect for you.

It’s easy to save your business money by employing on or more of the following tax saving strategies.

Start a Retirement Plan

If you haven’t already, think about creating a retirement plan. Payments can reduce your income and turn into real savings on your tax return for the following year. Different plans (Simple, SEP, etc.) have individual limits and deadlines, so work with your CPA or financial planner to select the plan that’s ideal for your small business.

Defer Income

This tip is good for small businesses that operate with cash. Basically, any income you earn through December will be taxable in 2010.  Instead of accepting any pending income immediately, you may decide to defer payment until the new year. The money earned will not be considered taxable until 2011. This is an especially attractive option for small businesses that work with clients on a daily basis. Offer to defer payments on any services until the new year or simply send out invoices late in the month. Your business will save money and your clients will thank you for the extra time.

Go Shopping

Yes, this tip seems a bit backwards. However, spending money on your business before the year is out can increase the amount of tax deductions your business is allowed to claim. If you think you’ll need supplies in early 2010, buy the goods now and use them before the year is out. Purchase new equipment and clear out damaged inventory.

More tips to come. Stay tuned.

(And here it is: End of Year Tax Tips For Small Business, Part 2)

Share on Facebook

Question posed to the Wall Street Journal Small Business Video series: as personal tax rates increase, isn’t it a good idea to form a C corporation and be taxed at the corporate rate?

The answer: for most small businesses, no. Most small businesses would be better as an S corporation or an LLC.

See the advice from Michael Hanley, CPA and partner of Merl & Hanley. He explains that although personal and corporate tax rates may be similar, the actual taxable income will often be less on a personal return.

The taxable income of the business, if a C corporation, would be taxed at that amount. However, if the company is an S corp, that amount passes through to the individual, who then can apply a series of deductions to that amount, such as the standard deduction, mortgage interest dedection, etc. All this brings he taxable amount down.

Share on Facebook

Here’s a great iPhone app that I’ve been using to track miles for expenses.

Trip Cubby.

You can set up multiple cars, save frequent destinations, auto-calculates miles, syncs with a server side database for backup. You can have it email you a log file to open in Excel and dump into your tracking log or expense report.

I’m please with the functionality and usability.

 Take a look and give it a test drive: Trip Cubby iPhone App.

_

Share on Facebook

As your company grows and changes, you may want to consider if you have the right entity type for the present stage of your business.

Perhaps you’ve chosen to do business as a sole proprietor to avoid the costs and maintenance of a formal business entity, and you are concerned with the liabilities associated with the business and how your personal assets are at risk.

Perhaps you chose to form as an LLC, for the simplicity of maintenance and liability protection, and you’re at a stage where you’d like to take outside investment. You may find that investors’ preference is to be a shareholder of a corporation, not a member of an LLC.

Perhaps you organized as an S corporation for the benefits of pass-through taxation and liability protection, but now you’ve reached some of the limitations of an S corporation.

Perhaps you’ve formed as an LLC in California, and your revenue has reached the threshold where your franchise tax is being calculated on gross receipts, not on profit.

However your business grows, the decision of entity type should be revisited periodically. Since businesses change over time, there is not necessarily one best choice for all stages of a company’s life.

Each entity type can have its advantages and limitation. Here are some questions to ponder:

• How important is it to protect your personal assets against liabilities and debts of the business?
• Will the number and type of owners change in the future?
• If you are an LLC, are you paying taxes calculated on gross receipts, and could you reduce your taxes by becoming a corporation?
• Are you satisfied with how you presently allocate profits and losses among owners?
• Do you anticipate changes in how you’ll want to allocate profits and losses?
• Do you want to provide retirement and fringe benefits to owners?
• Do you want to offer medical reimbursement to owners?
• What are the plans for future growth?

As always, if you have any questions, please contact us here or at (800) 610-0373. Some of these are questions for your accountant or attorney, and we’ll do our best to get you answers or point you in the right direction.

Share on Facebook

Considering forming an LLC or corporation in the state of Delaware?

There are many reasons that companies form in Delaware.

One thing that attracts many of our clients is the lack of income tax for corporations and LLC’s. But what many entrepreneurs don’t know is that there is a franchise tax. That is, there is a yearly minimum tax due, no matter what.

And for a new business, it can be substantial.

So much is this franchise tax? Let’s break it down…

There are two methods of calculating the franchise tax amount in Delaware: the “Authorized Shares Method” and the “Assumed Par Value Capital” method. You pay the lesser of the two approaches.

Say your corporation authorizes 100,000 shares. By the “Authorized Shares Method” of calculation, the annual franchise tax will be $825.

If you authorize 100,000 shares, the franchise tax is $7,575.

If you use the Assumed Par Value Capital method, it may be less, but this depends on what you’ve set your per share par value to.

A Example Case:

An accountant recently told us of a startup that planned to form in Delaware. They were going to issue 10 million shares to the founders, form a stock option pool of another 10 million shares, then sell another 10 million shares to investors at a value of $5 per share.

Sounded like a solid plan to the entrepreneurs until the CPA ran the numbers on the franchise tax. The “Authorized Shares Method” for 30 million shares authorized calculates a tax bill of $180,000 per year.

By the Assumed Par Value method, its less, but still substantial: $17,500.

Once the CPA explained this to them, they changed their plans and formed in California, where the business was based, and saved a ton of capital right out of the gate.

So consider this franchise tax before jumping at forming a corporation or LLC in Delware. Talk to us. We’re here to help with your questions.

And also, as always, talk to your accountant. If you don’t have someone that you’re working with, contact us, and we’ll refer you to several top quality CPAs to speak with.

Share on Facebook