Archive for March, 2015

Tax Planning Strategies for Small Businesses

According to the U.S. Census Bureau, approximately 99.7 percent of firms had less than 500 employees in 2011; approximately 89.8 percent of firms had less than 20 employees!

If they make up such a huge portion of all business, why are small businesses the ones getting “the short end of the stick?” Some small businesses are paying between 34 and 39 percent in taxes, while mega-corporations are paying less than 10 percent in taxes! How is this possible, you ask? It’s possible because mega-corporations know how to take advantage of tax deductions that a lot of small businesses are not even aware of.

As a small business owner, are you taking advantage of all the deductions you’re eligible for? Let’s review a couple of scenarios:

~ Many small businesses begin at home as one or two man (or woman) operations. An idea strikes and before you know it, you’ve started a business, working day and night, at the kitchen table, in the living room, in the comfort of your bed, or anywhere else you’re able to find some peace, in order to make your business a success. While I commend you for your hard work and dedication, there is a better way of handling this situation.

Instead of moving from place to place within your home, you should be working from a home office. Converting a room in your home into an office space is usually fairly simple and offers a ton of tax advantages! There are four tests that must be met in order for your home office to qualify:

1. Exclusive Use Test: Area of the home must be used only for business.
2. Regular Use Test: Specified area of home must be used for business on a regular basis.
3. Trade or Business Use Test: Area must be used in connection with a trade or business. Activities resulting in profit that are not considered a trade or business do not qualify.
4. Principal Place of Business Test: If there is more than one business location, the home office must be the primary location used.

Once all these tests have been met, say hello to your home office tax deductions! A portion of your utility, insurance, home repairs, and depreciation just became valid business expenses. Also, if you have more than one business location, you daily costs to commute from one location to the other are deductible.
The advantages to having a home office are bountiful, and could qualify the start-up small business owner to take deductions that he or she would otherwise not be allowed to deduct.

~ You have just begun your new business as a web-site designer. Because you’re the new business around town, competing against several already-established players, you realize you need to start looking for ways to improve your offerings and emerge as a leading quality web-site designer. In an effort to make this happen, you sign up for subscriptions to two web-design related magazines, Net Magazine and Digital Arts Magazine.

As time goes on, with the help of your two magazine subscriptions, you see your performance improve substantially, but still worry that it is not enough to put you ahead of the competition. In another effort to improve your skills, you grab your cellphone and call a local business consultant, whom you end up treating to lunch to discuss your options.

Your business consultant informs you that there is web-designing seminar coming to town next month; it will cost you $600 to attend the seminar, but your consultant assures you it will be worth it.

You’re finally starting to realize just how costly it can be running your own small business, and start to question whether or not you should just give up all together. HANG IN THERE! The majority of the expenses we have discussed are fully tax deductible!

~ Subscription to Net Magazine – TAX DEDUCTIBLE!
~ Subscription to Digital Arts Magazine – TAX DEDUCTIBLE!
~ Phone Call to Business Consultant – TAX DEDUCTIBLE!*
~ Lunch with Business Consultant – TAX DEDUCTIBLE!**
~ Web-Designing Seminar – TAX DEDUCTIBLE!

*Please note that only expenses related to business calls made on a personal cellphone are deductible. Non-business related calls made on a personal cellphone are not deductible business expenses.
**Please note that business meals and entertainment are not fully deductible expenses. These expenses are usually subject to a 50 percent limit.

Small business owners often pay more than their “fair share” of taxes. This is because many are unaware of the numerous tax advantages they qualify for. Are you or a small business owner you know paying too much in taxes?

To schedule a FREE Small Business Tax Consultation, please call Memphis Consulting Group, LLC at 901.791.4643 or follow the contact link located at the top of this page.