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March may have just begun, but the tax deadline will be here soon. Business owners have a lot of tax issues that often can go overlooked in a rush to file on time.
Now is usually a good time to discuss with your CPA if the business entity selected to operate your business is the most beneficial to you. These choices include s-corporation, limited liability company, partnership, corporation or sole proprietorship. When looking at this initial issue, consideration should be given to issues like limiting legal liability of the owners of the business, self-employment tax and retirement plan options.
Often, a change for the upcoming year needs to be made early in the year. For example, to convert to an s-corporation for 2011, the election usually needs to be made by March 15.
With that in mind, here is a quick rundown of some business deductions that may have been overlooked.
Are there any tax benefits to businesses providing continuing education for employees?
TS: Educational expenses for continuing education are a normal business expense against income and are deductible in the year incurred.
An employee may receive up to $5,250 tax-free from his employer for educational assistance. The education assistance must be provided under a separate written plan that is publicized to your employees and meet certain guidelines, including nondiscrimination requirements.
We’ve heard a lot about the new health care bill. What issues should business owners be aware of this year?
TS: One of the benefits that Congress provided for in the health care bill is a new income tax credit for small businesses that primarily employ moderateand lower-income workers.
The credit can reduce an employer’s regular income tax, as well as its alternative minimum tax.
For years 2010 through 2013, the credit is generally equal to 35% of the employer’s nonelective contributions toward the employee’s health insurance premiums. There are limits as to the number of employees and the average wages paid to them in determining the amount of credit available for the employer.“One of the benefits that Congress provided for in the health care bill is a new income tax credit for small businesses.”
What other changes were made this past year?
TS: The Small Business Jobs Act of 2010 provided for an increase in the dollar limitation for expensing of equipment and other eligible assets of up to $500,000 for 2010 and 2011, under IRC Section 179. In addition, this is the first time that certain leasehold improvements may qualify for the deduction under Section 179, limited to $250,000.
With this bill, the bonus depreciation rules were extended for years through 2011, initially at 50%, then the Tax Relief Bill increased the bonus rate to 100% for additions to qualified equipment and similar property made after Sept. 8, 2010.
If I’m starting my own business, how do I record the costs associated with organizing the business?
TS: The original cost to set up a business is allowed to be expensed for the first $10,000. Organization costs, such as legal fees and other professional fees, in excess of the $10,000, must be amortized over a period of 15 years.
What are the rules related to entertainment expenses?
TS: Entertainment expenses may be deducted as business expenses if they meet one of the two tests: the directly related test or the associated test. These tests require the entertainment expense to be directly related or associated with a business client meeting directly before or directly after the meeting.
These expenses include meals and other forms of entertainment, such as sporting events. These expenditures must be properly documented: the date the activity occurred, persons in attendance, and the nature of the business discussions. These amounts are reduced by 50% for purposes of an income tax deduction.
Country club dues are not deductible; however dues to civic organizations, such as a Rotary, may be deducted.
Are there any additional new credits available?
TS: The new hire retention credit was enacted as part of the Hiring Incentives to Restore Employment (HIRE) Act on March 18, 2010.
You may be able to claim this credit of up to $1,000 for each retained worker. A retainer
worker is any qualified employee who was hired after Feb. 3, 2010, and before Jan. 1, 2011, and the employee works for you at least 52 consecutive weeks.
Can I deduct personal use of my vehicle?
TS: If you use your personal car or truck for business, you can deduct the costs associated with businessrelated driving.
The law lets you choose between deducting your actual costs or using an IRS-set mileage rate (50 cents per mile in 2010 and 51 cents per mile in 2011), assuming you qualify and have the records needed to back up your deduction.