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Tip: Do Not Overlook Tax Perks

Tip of the Month

November 2009

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Tip: Do Not Overlook Tax Perks

It’s not too soon to be thinking about your taxes for 2009. First, it might be time to sit down with your tax professional to see if there are some tax perks out there that would benefit your small business. Second, the Internal Revenue Service indicated at the end of October that it was starting a new initiative to focus on the nation’s wealthier individuals.

Let’s start with looking for savings. A review could show some obscure or frequently overlooked items at the Federal, state or local level that might save you money:

    • Property Taxes

      You might have already taken a hard look at your residential tax assessment, but don’t forget the commercial property you own. Many commercial property values have decreased, and it makes sense to have an appraisal to see if yours has decreased, too. An appeal can be filed with your local tax assessor’s office.

 

    • Domestic Production Activities

      Companies that produce more than half of their products domestically are eligible for either a Federal tax deduction of 6 percent of income received from the products or a 6 percent deduction from the business owner’s adjusted gross income. The deduction is made on the lesser of the two totals. Some states match these deductions for state taxes; see if yours is one of them.

 

  • Structure Your Company With Tax Rates in Mind

    A limited liability company is the choice for most startups because it offers business owners the option of passing through profits to a personal income tax filing where the maximum tax rate of 35 percent prevails. Within a corporate structure (C-Corporation) the business will pay taxes at corporate rates (currently 15 percent for the first $50,000, rising to a maximum of 39 percent). When the corporate business owner takes a dividend from profits, the double tax peril kicks in, wherein the dividends are assessed at the prevailing individual tax rate. However, if the business owner intends to seek venture capital, the C-Corporation is often the best choice because it allows for easy transfer of shares to investors. Make sure your business is structured to give you the best tax advantages.

Now, let’s look at where the IRS might make life tougher. A new initiative, announced at the end of October, seemed at first glance to affect the nation’s wealthiest individuals. However, closer examination shows that the classification could extend beyond this small subset. Here are a few key points.

Global High Wealth Industry

A new IRS unit called the Global High Wealth Industry Group will focus on the wealthiest individuals and their assets. Although the number of individuals who earn tens of millions of dollars a year are few, if assets qualify them for increased scrutiny then considerably more people could find themselves in this high wealth group. People who own real estate or perhaps those who receive a sizeable retirement package might qualify for the high wealth category.

Complicated Financial Arrangements

On the heels of the UBS tax shelter probe, the IRS is expected to pay close attention to individuals with investments in offshore hedge funds. Likewise, taxpayers with complex financial situations — trusts, private foundations, privately held companies — are more likely to receive IRS attention.

The above is intended to provide an overview only. Your personal situation requires input and guidance from your legal and professional tax advisors.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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