Everyone wants to pay less in taxes. Fortunately, there are some old and new ways — thanks to lawmakers who feel our pain — to lower your bill. As always, check with a tax professional for all the details, but here are 10 steps for lowering your small-businesses taxes:
1. Buy new stuff. Small businesses can deduct up to $250,000 on new-equipment purchases—twice as much as last year. You can then take depreciation of the equipment’s value. The only catch: you must use the new goods by the end of the year.
2. Pay your reservists. The Heroes Earnings Assistance and Relief Tax Act of 2008 gives a tax credit to businesses with fewer than 50 employees that pay their reservist employees the difference between their civilian and military pay. The credit is 20 percent of the amount paid, up to $20,000.
3. Drive green; drive American. Enjoy a tax credit on a hybrid car bought for your business based on the vehicle’s fuel efficiency—it amounts to $1,300 for a Chevy Malibu and $3,000 for a Ford Escape or Mercury Mariner.
4. Maximize your mileage deduction. The IRS raised the standard mileage deduction mid-year. For the first half of 2008, you can take 50.5 cents per mile; for miles driven after July 1, it’s 58.5 cents per mile.
5. Take your losses. Even without capital gains, investment losses can be used to offset up to $3,000 in income. A $1,000 loss that offsets $1,000 in capital gains saves $150 (at the 15-percent capital gains rate), but the same loss offsetting $1,000 in income saves $350 at the 35 percent tax bracket.
6. Fund your retirement account. Still a great tax write-off and with several options to ask your accountant about.
7. Become a landlord. Commercial real estate is one of a few investments in which you can enjoy positive cash flow and still report a loss on your taxes—thanks to depreciation.
8. Opt out of an installment sale. Even if you’re accepting installment payments on a capital asset you’ve sold, such as land, it may be worthwhile to pay the taxes on the gain all at once. Joint filers with $65,100 or less in taxable income have a long-term capital gains tax rate of zero, so they can avoid capital gains tax altogether.
9. Speed up expenses. Finish as many business expenses as you can before the end of the year for 2008 write-offs—think of buying office supplies now, instead of in January, visiting clients you need to see anyway, etc.
10. Clean up your books and get ready for next year. Keep good records of clients who won’t pay. Then at the end of the year, give up on receiving those payments, and write off dated inventory and bad debt.
