Tax Tips
Year-End Tax Tips for Small Business Owners - November 2007
Richard Scrivanich - Partner
Many small business owners make the mistake of not thinking about taxes until it's time to file their returns. But tax planning is an ongoing process, and before year-end is one of the most important times to take steps to lower your 2007 tax bill. Here are just a few ideas.
Plan for retirement.
Take time to make payments to your retirement plan or to set one up (Keogh plans must be established by December 31). Contributing to an IRA, Keogh, SEP (simplified employee pension), or other retirement plan is a great way to reduce your taxable income and plan for the future. There are different rules, contribution limits, and deadlines, depending on the plan you choose.
Reevaluate your business's legal entity.
While small businesses often start out as sole proprietorships or partnerships, many owners eventually explore the transition to another entity. For example, you may want to consider the legal and/or tax advantages of a corporation or limited liability company (LLC). Consider the different legal entities with us now so you can have any changes in place at the beginning of next year.
Domestic production activities deduction.
Is your business involved in domestic manufacturing, engineering, construction, eligible production activities, or architectural services that are related to construction? Regardless of whether your business is incorporated, you may be eligible for a 2007deduction of 6% of the lesser of your (1) "qualified production activities" income, or (2) taxable income.
The rules surrounding this deduction are as intricate as they are complex. Our office can talk to you about your eligibility, deduction limits, and other factors affecting this new deduction's impact on your business tax liability for 2007.
Section 179 expensing deduction.
The Tax Code allows you to expense up to $125,000 of qualified fixed assets for 2007, rather than depreciating them over several years. This deduction is limited to personal property used in your business; it is not extended to real property. However, you cannot expense more than the taxable income generated by your active trade or business activities. The expensing deduction is reduced dollar-for-dollar if your total qualifying business property purchases rise above $500,000 and it is eliminated if they reach $625,000.
A year-end planning meeting.
The above ideas are just a start. Appropriate year-end planning for your business may include consideration of the amount and timing of compensation, equipment purchases, or loans to or from your business, just to name a few topics.
If you have any questions regarding the year-end tax tips for small business owners or any other tax matter, please feel free to give me a call at (562) 698-9891.
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Do not duplicate or distribute without permission. All information in this
article is for informational purposes only.
Some of the articles included here were written in a prior
year or before a current tax law change. Therefore some of the information in
the older articles may not still be valid. Any dollar thresholds indicated
relate only to the year for which the article was written and could be different
for the current year. Please discuss with us your personal situation before
acting on any of the information provided. If you have any questions,
please give us a call at (562) 698-9891.
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