Tax Tips: Things To Know Before You File
by John Carlisle
It’s March, which means the only people busier than tanning salon owners are accountants. As more sun-lovers are climbing into tanning beds, numbers-crunchers are filing droves of returns to Uncle Sam, trying to meet that dreaded April 15 deadline.
Unfortunately, many salon owners can’t afford to employ a permanent fleet of financial officers. Instead, some hire accounting consultants for the season, while others opt to do their own filing. Whether you’ve enlisted an accountant’s help or are tackling the task on your own, collecting the right forms, capitalizing on the available deductions and staying up to date on the latest changes to tax law are essential.
Knowing how the federal government classifies your business is the first step because that is what will determine the forms that need to be a part of your return. Once you have that figured out, it’s time to itemize your deductions. Regardless of how you’re classified, this is where most small-business owners miss out—generally because they don’t know of deductions applicable to them. Here are some general business deductions that no one should miss:
Auto Expenses. If your business owns a vehicle or you drive a private one for business purposes—other than transit to and from work—you can note this on your filing. Record all business-related miles, and note that the updated federal rate is 48.5 cents per mile.
(For more information, check out Publication 463.)
Start-up Costs. The government will reward you for starting your own business. Salon owners can deduct many one-time start-up costs, but they must be spread out over the first five years because they are considered capital, not business, expenses.
Education Expenses. All of the tanning safety recertification programs you or your employees took in 2007 are deductible. Save your receipts.
Legal and Professional Fees. If you need more incentive to hire a seasonal accountant, know that you can deduct what you paid them. The same goes for lawyers. If they are hired for more than one year, though, the deduction has to occur over the life of the benefit.
Entertaining Clients. If business is discussed at an entertainment function, you may deduct 50 percent of the cost. A good example of this is a catered luncheon meeting with employees.
Travel. You can deduct all of the expenses for a business-related trip. Again, save and make copies of receipts in case of an audit.
Interest. If you’ve taken out a business loan, record how much you’ve paid in interest. That figure is fully tax deductible, but make sure not to commingle these funds with personal expenses.
Computer Software. Though software usually has to be depreciated, it can be part of a write-off with an entire computer system in one year if the software came with the computers.
Charitable Contributions. Unless the salon is a corporation, these contributions can transfer to your personal filing.
Advertising and Promotion. All advertisements can be listed as current expenses. Similarly, all promotional endeavors, such as sponsoring a beach volleyball tournament, are deductible as long as the link between the promotion and the event is clear.
Tax law never stagnates, so the 2007 filing features a few notable changes from previous years. If your salon has hired anyone in 2007 as part of welfare-to-work, be aware that the deduction has combined with the work opportunity credit. Make sure to investigate whether any of your employees were on welfare in 2006 or 2007, and download Form 5884 to claim the deduction. However, the deduction is only valid if you turned in Form 8850, the Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to your state work agency within 28 days of when the welfare-to-work candidate began work for you.
Another change comes from the self-employment tax on Social Security, but this one is not necessarily in your favor. This year, the maximum amount of net earnings subject to this tax climbed to $97,500, which affects many salon owners, particularly the ones with high yearly salaries, as they generally are their own bosses.
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