Dear Professor Bruce: As a small business owner, tax day is fast approaching for my firm. What can I do to help maximize my savings?
Answer: Every penny counts, so maximizing your return can be extremely important. Understanding recent tax law changes and claiming deductions — expenses claimed for a tax reduction — are key to making sure your business gets the full amount of money from the government this year.
Mike D’Avolio, senior tax analyst at Intuit, which publishes Turbo Tax and Quicken, lists some of the top deductions and tax law changes that small businesses should be aware of:
Tax law changes
• Depreciation. Businesses are allowed to claim a 100 percent bonus depreciation deduction for new assets purchased in 2011, such as furniture and equipment (50 percent for 2012). Even though the purchase of used property does not qualify for the 100 percent bonus depreciation provision, it does qualify for a section 179 expense deduction. There is a $500,000 limit for 2011 ($125,000 for 2012). Certain types of real estate qualify for the section 179 deduction with a $250,000 limit (applies to 2011 only).
• Hired new employees? A $1,000 credit is available to the business owner for each employee hired after February 3, 2010 and before January 1, 2011 and is claimed on the 2011 tax return. The business owner must retain the new employee for at least a year.
• Write-off for new businesses. The government encourages people to open businesses by allowing a $5,000 write-off of start-up expenses (down from $10,000 in 2010). Any start-up costs that are not allowed to be expensed can be amortized over a 15-year period. Examples include advertising, employee training, and a market survey.
• Retirement. It’s always a good idea to plan for retirement especially with generous government incentives. There are a variety of retirement plans available to small businesses that allow the employer and employee a tax-favored way to save for retirement. You’re allowed to make contributions up until the due date of the return and still get the deduction on the 2011 return.
• Small employer health insurance credit. There is a relatively new small employer health insurance credit that helps small businesses afford the cost of covering employees.
• Self-employed health insurance deduction. The government allows small business owners to deduct the cost of health insurance paid, including Medicare Part B premiums, for the taxpayer, spouse and dependents.