Advanced Tax Planning Strategies for Small Business Owners – September 2013

The Shaw Atlas

September 2013

Welcome to The Shaw Atlas, the monthly newsletter from Shaw & Associates, CPAs & Financial Advisors. We look forward to keeping you abreast of ever-changing tax codes, providing you with money saving accounting tips and illustrating proactive strategies to help you achieve the financial life you envision.

Newsletter contents:

Advanced Tax Planning Strategies for Small Business Owners

Connect on LinkedIn

Tax Relief for Colorado Flood Victims

 

Advanced Tax Planning Strategies for Small Business Owners
Kevin Shaw, CPA

 

Everyone who owns and operates a small business knows how important it is to identify all opportunities available to increase their business deductions and, therefore, decrease their taxable income. This is especially true for sole proprietorships, partnerships and limited liability companies (LLC’s) since the taxable income of these types of businesses are subject to both income and self-employment taxes. Most business owners are leveraging certain personal assets, to the extent that they are used for business, as taxable deductions such as automobiles, cell phones and home offices (when their only office is in the home). However there are other, slightly more creative, ways to reduce your tax burden that are perfectly legal and within the rules of the IRS. Here are a few examples:

  1. Home Office – Prior to a landmark court case concerning home offices, the IRS took the position that an office in the home could only be deducted for tax purposes if it was the primary place of employment. Thus, you needed to basically entertain clients at your home before it would qualify for the home office deduction. The court case changed this to allow business owners that perform significant administrative functions at a home office to qualify for the deduction. Thus you could move the administrative functions of your business to your home and get additional deductions for expenditures you are already incurring that will save you taxes.
  2. Business Auto Use – A second advantage to having a home office is that you could potentially increase the amount of business miles you are able to deduct for your vehicle. When you have only the one office not in the home, your mileage to and from the office is considered commuting and not tax-deductible. However, when you have two offices, leaving your administrative office in the morning can become a business trip, increasing the amount of your automobile deduction without incurring any additional expenses. The intricacies of this are a bit more complex to detail here so please contact me to discuss further.
  3. Two Vehicles for One Business – By using two vehicles for your business instead of one, you can increase the amount of your deduction without increasing your business miles or costs. As an example, you are married and you use your vehicle 90% for business. Your spouse’s vehicle is not used in any business. If you change your driving habits so that you use both yours and your spouse’s vehicle for your business miles, and the business miles for each car exceed 50% of the total miles, both vehicles are eligible for accelerated depreciation deductions, thereby increasing your business deductions.
  4. Medical Expenses – For those businesses that file as a sole proprietorship (Schedule C) there is a deduction available under Code section 105 that would allow the business to deduct many, if not all, medical expenses for the owner and their family as a business deduction. The business would have to employ the spouse as an employee. The spouse would actually have to be providing services to justify the wages. In this case, the business would set up a section 105 health plan and reimburse the employee for the medical expenses up to the IRS prescribed limits.
  5. Home Use for Office Events – Another interesting strategy would allow a business to “rent” the business owner’s home for office events/meetings/parties for up to 14 days per year. The business gets a deduction for the fair market value of the rent and the owner does not have to recognize the rental income on the personal tax return.

The above are just a few examples of planning techniques that can provide some significant tax savings with a little bit of planning. If you or anyone you know would be interested in setting an appointment to review their tax situation, please contact Cassy to arrange an appointment.

Back to the top

Connect on LinkedIn

Here at Shaw & Associates we strive to make sure that our clients are informed and up to date with the most current news and information regarding their taxes, whether business or individual. To help ensure that we continue to provide our clients with recent and helpful information Shaw & Associates is adding yet another resource, LinkedIn. Starting in October, Kevin Shaw, Marcy Palm and Susan Graham will begin blogging once a week. Make sure to connect with all three of them on LinkedIn to guarantee that you receive all of the current news and events concerning your taxes and financial health.

Click on the links below to connect with each of them:

www.linkedin.com/in/kevinshawcpa/

www.linkedin.com/in/marcypalm/

www.linkedin.com/in/susangrahamcpa

Back to the top

Tax Relief for Colorado Flood Victims

The President has declared Adams, Boulder, Larimer and Weld counties as federal disaster areas. The IRS announced filing deadline extensions for individuals and businesses located in these counties until December 2, 2013 if you have already filed a 2012 extension. However, the State of Colorado has only granted a 30 day extension. Thus, even though the IRS’s extension deadline is December 2, 2013, any 1040 returns will need to be completed by November 14, 2013 and 1065’s and 1120’s will need to be done by October 15, 2013. The same extension deadlines apply to third quarter estimated tax payments for the same taxpayers.

In a declared federal disaster area, qualified casualty losses can be carried back to the previous year’s income tax return to generate a bigger refund. However, in some cases it may be better to wait until you file your 2013 income tax return to create a better tax benefit.

If you are located in the covered disaster areas the IRS will automatically identify you; however if you reside or have a business outside of the covered disaster areas you must call the IRS disaster hotline at 866-562-5227 to request this tax relief. If you have any questions on if you or your business qualify for this tax relief, please contact us at 970-223-0792.

Back to the top