Year-end Tax Tips

Guest post by Bryant Armstrong, CPA and Partner at Squire & Company, PC

For most business owners, mention the word “taxes” and their minds start to race. It’s funny how this one word can cause people such worry and distress.

Luckily, the world has trained individuals called “accountants” that actually get excited about taxes and will help alleviate your worry and confusion.  Although nobody can completely avoid tax interaction, these five tax tips will help make your tax preparation easier on you and your accountant.

1. Write-Off 100% of Cost – Businesses have several tax incentives to invest in machinery, equipment and other fixed assets in 2011. The first: a “bonus” first-year deduction for 100% of the cost of qualified property acquired and placed in service after September 8, 2010 and before January 1, 2012.  There is no dollar limit on the 100% write-off and most new assets can qualify.

2. Turn a Loss into a Tax Gain – No business owner welcomes a net operating loss (NOL). However, if you expect your company to show a loss this year, plan to use it to your best tax advantage. A net operating loss may be carried back two years and by doing so you may secure a refund of income taxes paid. Unused NOLs may be carried forward to offset future taxable income for as long as 20 years.

3. Avoid Taxes on Expense Reimbursements – Having a so-called “accountable plan” for reimbursing your employees for their travel and other business-related expenses can save taxes for you, your business and your employees. Assuming all IRS rules are met, the reimbursement amounts are not treated as income. The result: Your employees don’t have to pay income tax or FICA tax on the reimbursements, and your business won’t owe payroll taxes on those amounts. It’s a win-win.

4. Take Credit for Health Insurance Costs – If your company offers health benefits, see if you can qualify for a tax credit for a portion of those costs. The credit is available to small employers with no more than 25 full-time employees.  You generally have to contribute at least 50% of the employee’s total premium costs. The maximum credit is 35% of an employer’s contribution toward health coverage. This is money that you might have otherwise not known you can get back.

5. Reduce Your Self-Employment Tax – Self-employment taxes are the counterpart of the Social Security and Medicare taxes paid by employees and their employers. SE taxes can represent a significant expense for self-employed taxpayers.  The good news is the rate for the Social Security portion has dropped from 12.4% to 10.4%. Don’t overpay this year by paying the same rate as last year. Save yourself money and recognize the lower rate.

There are many other tips that will save you time and money during this upcoming tax season. Talk to an experienced accountant or CPA to support your business and make tax time less stressful.

This article should not be construed as tax advice from Bank of American Fork. Please seek tax advice from a qualified tax professional.

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