Facing a still-difficult economy and a flurry of tax changes, business owners must be especially alert to new tax pitfalls and opportunities. To help our small business readers, Business.com collected top tips from leading small business tax experts coast-to-coast.
Small Business Tax Tip #1: Tap the new rules for business NOLs: "Small business owners need to plan for their net operating losses (NOLs)," says CPA Stacey Dell, a tax partner with Mohler, Nixon & Williams in Campbell, CA. " An election must be made at the time a tax return is filed to either carry back or carry forward the current year NOL. Check your tax rates and income levels from the prior years. If income is expected to increase in the future, it may be better to carry the loss forward."
Small Business Tax Tip #2: "Do the opposite of what we've told you before," says Christopher Axene, a CPA with Rea & Associates in Dublin, OH. "This year, think about accelerating income and deferring expenses. That is the opposite of everything accountants have typically preached for many years. But this may be the time to look at IRS-approved ways of minimizing taxes through different accounting methods."
Business Owner Tax Tip #3: Depreciation is your friend: Claude Titche III, a CPA with Beene, Garter in Grand Rapids, MI, offers this tip: "Be sure to maximize depreciation deductions available by using the Section 179 immediate deduction of fixed assets and the 50 percent bonus depreciation for purchasing new assets. Quicker depreciation expenses save tax dollars. Remember that you only get to deduct the cost once. A current deduction is better than a deferred deduction."
Small Business Tax Tip #4: Beware of out-of-state surprises, offers Joel Rothenberg, CPA, a tax partner at Boston-based DiCicco Gulman and Co. "Small business owners should review their state filing requirements for income tax, personal property or sales and use tax. State tax authorities are being super aggressive in enforcing their laws and business owners must know the rules in their home state and also determine if their activities in other states trigger a filing requirement."
Business Owner Tax Tip #5: Take advantage of depressed asset values, recommends Vincent Paolucci, a tax partner with Grassi & Co. in Jericho, NY. "In light of the current economy, which has driven down market values of businesses, entrepreneurs should consider transferring stock in their companies to family members as part of their total estate plan."
Small Business Tax Tip #6: Bank on a C-corporation Comeback: According to John Smolke, CPA with Seattle-based Peterson Sullivan, "The prospect of increased future tax rates means business owners should consider the most appropriate form of business operation. C-corporations may make a comeback if individual tax rates are increased to 39.6 percent; if a surtax of 5.4 percent is imposed on high AGI taxpayers; or if additional Medicare taxes are imposed on high-income taxpayers. Paying taxes at C-corp rates may make the most sense, especially during the years when the business needs to build up its equity."
Small Business Tax Tip #7: Expect more extensions, says Kimberly Lawrence, with Joseph Decosimo & Co. in Chattanooga, TN. "As 1099 reporting is allowed to move closer and closer to a tax deadlines, more small business owners can expect their business and individual returns to be extended. We educate our clients about the possibility of extending their returns due to the increased compression period in receiving this information so close to tax deadlines. We also assure them that there is no increased risk of their return being selected for examination by extending."
Business Owner Tax Tip #8: "Take a trip on your P&L to find hidden treasure" says Bruce Zicari, a CPA in the small business advisory practice at Pittsford, NY-based Bonadio Group. "There's a line on your P&L statement that has a 'hidden' deduction opportunity that could generate a big tax advantage and put cash back into your pocket. Basically, it's a way to move certain capitalized items that are currently being written off through depreciation and reclassify them as a repair. Instead of taking small amounts of depreciation yearly, you get to write off the whole item this year. But Zicari says the clock is ticking on the opportunity to expense these previously capitalized items. "The maneuver is well worth taking, and you should be starting your journey now, as the IRS will most likely be closing the road in the near future."
Business Owner Tax Tip #9: Don't procrastinate, counsels Larry McKoy, Senior Tax Partner, Goodman & Company, Richmond, VA. "Many companies are probably more worried about the economy than about their taxes right now, but that could be a mistake. As bad as the economy is, you need to know your options before it's time to pay your taxes. Even if you had a bad year, you may owe taxes (surprise!) or you could get significant refunds of much-needed cash from net operating losses. So don't avoid your accountant."
Small Business Tax Tip #10: Don't Expect More Tax Relief. "Read my lips," says Chris Province, CPA and partner in the firm Armanino McKenna, in San Ramon, CA, "Don't look for relief on taxes anytime soon from Washington, or state governments." Tax rates will be going up, according to Province, who recommends that small business owners consider what they can do to minimize taxes now and in future years when tax rates go up.