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Taxes

Essay by   •  October 7, 2010  •  Essay  •  808 Words (4 Pages)  •  1,152 Views

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Planning for your disability or death can result in lower taxes for business owners. Gift, estate and income taxes can be properly managed with a succession plan. Costs for life insurance and professional fees may be lower under a plan. This strategy can also minimize squabbling among family members and key business managers.

Income splitting is one type of planning tool - simply move income to a child or other family member who will pay at a lower tax rate. The person must perform reasonable work and their compensation may not be outrageous. Hiring parents requires that you review their Social Security benefits and set their pay accordingly. A dependent child can earn up to $4000 before paying income tax, but, if the child is over 18, you may have to cover payroll tax and workers' compensation.

Poor record keeping often causes businesses to fail. The tax code requires that you keep "records appropriate to your trade or business." While the code does not specify a particular format, the records must be accurate. Proper records allow you to prepare tax returns more quickly, and may alert you to problems earlier. The balance in your checkbook plus the money you draw out of the business rarely is your taxable income.

Equipment purchases may qualify for an immediate deduction instead of being depreciated. You may take up to $20,000 as "Section 179" deduction in 2000; that increases to $24,000 in 2001. Limitations exist for autos and small trucks. Review your equipment needs to apply this deduction.

Recent changes in the tax code allow you to deduct the costs of maintaining a home office. Generally, you must not have another business location. You can write off a portion of your utilities, home insurance, pest control, and certain repairs. Depreciation must be weighed against the tax consequences of selling your home. But, keep in mind that the tax code says that depreciation is "allowed or allowable. " If you use your home for business, you still have to consider depreciation in computing a gain on sale of business property whether or not you took the depreciation deduction.

Clean out old equipment, office furniture and "dead" inventory and donate them to charity. Keep careful records of the items and value donated. Charitable contributions are allowed to any business entity.

Vehicle expense is usually a high deduction item on a business tax return. Higher gas prices have not caused the mileage rate to increase, however, and you are allowed 32.5 cents per mile for 2000. You have an option of taking actual expenses or mileage, and the difference in calculating the deduction can be considerable. Do not forget to include spouse and children's vehicle information when used for the business. Keep careful records of your business mileage

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