Although the much-talked about economic recovery is still largely invisible to most small business owners, now is a good time to position yourself to take advantage of special tax benefits as activity starts to improve. "Although tax rates may trend upward in the next few years, most businesses can offset a big portion of those increases with proper planning now," says Steve Henley, national tax practice leader at the accounting firm CBIZ MHM, LLC. Here are some things to do:
1. Buy assets: "Our clients are getting tired of us saying this," says Henley, "but now is the time to buy qualifying assets." Under the Section 179 provision, you can deduct up to $125,000 of depreciable tangible personal property -- including off-the-shelf software, for example -- in 2010, if your business has sufficient taxable income. In 2011, however, the deduction limit drops to just $25,000. If the size of your deduction exceeds your business taxable income you can carry over unused amounts to future years.
2. Be creative with compensation: Put an incentive compensation plan in place. The reason is this: An incentive plan can reduce cash outlay by using non-cash compensation while rewarding performance and providing tax breaks at the same time. But make sure you comply with deferred comp rules (the so-called Section 409A provisions) that can come back to haunt your later.
3. Check into state credits and incentives: Although state and local governments are hurting for money, they still offer many money-saving opportunities for growing businesses. As you consider expanding facilities, adding employees or spending money on training, for example, be sure to check with state business development agencies to see what incentives they may be offering. Programs can include sales tax exemptions, property tax abatements, funds for training employees or direct tax credits for each new job you create.
4. Maximize your startup: If you are in startup stage with a new business, take advantage of special tax elections and deductions for startups. Get professional advice on the best way to set up your operation to generate the most tax benefits. For example, if you spend money on research and development you may be eligible for special R&D credits.
5. Recapture property tax overpayments: According to CBIZ, many business owners overpay property taxes due to incorrect assessments, inadequate fixed-asset systems and unclaimed exemptions. Have a property tax specialist review your situation to identify possible overpayments. Not only can you lower you next bill, but you can also file claims to recapture at least a portion of prior overpayments.