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Small Business Taxes Small Business Term Paper

(Dratch 2008, p. 2) Mileage: Once again, this involves careful bookkeeping, but the deductions can add up. Keep a dated log of all business-related mileage, tolls, and parking costs. According to the IRS website, the 2009 IRS deduction rate for business-related mileage was 55 cents per mile.

Travel, Entertainment, and Meals: For the small business, 100% of travel and entertainment expenses are deductible, as well as 50% of meal expenses. It should come as no surprise that these deductions must have supporting documentation showing them to be business-related.

Shelter Your Income

Investment property can be a valuable tax shelter. The IRS allows you to shelter up to $25,000 in an investment property, but there are strict requirements. You must own 10% of the property as an individual owner, not through limited partnership. And you must be involved in the "active management" of the property, meaning you must be able to document your participation in major management decisions. It costs a bit of time, but with today's real estate market, the timing for this strategy may be just right.

Make Your Losses Pay

Many businesses recently have found themselves reporting losses instead of profits. While this is never a position to celebrate, it can have some tax benefits. A taxable loss from the current tax year can be used to offset taxable income from other tax years, both past and future. When these losses are applied to past tax years, they can result in a net refund that would probably be welcome given the circumstances. Any loss left over once it has been applied to past tax years can be used to save you money in the future when your business is once again generating income. (Akasie 2008, para. 8)

Be Environmentally Savvy

The recent Green Revolution could mean more green in you pocket as a small business owner, but it may take some initial investment. Consider installing solar panels and energy efficient equipment. It will save you on out-of-pocket utility expenses, and will make you eligible for some substantial tax breaks. In addition to federal tax incentives, many states offer tax incentives as well. For example, in Georgia, $2.5 billion have been dedicated to a new Clean Energy Property...

(Akasie 2008, para.10)
Keep Track of Large Cash Payments

Any cash payments of more than $10,000 must be reported to the IRS on Form 8300 (Akasie 2008, para.15). "Cash" in this case includes traveler's checks, cashiers' checks, and money orders. Careful reporting of these payments will keep you clean of IRS suspicions, but they require detailed recordkeeping. Form 8300 requires the Social Security number of the buyer, so be sure to obtain this information during the transaction. If the buyer is unwilling to provide this information, it is best to avoid the transaction altogether.

Payroll and Self-Employment Taxes

Keeping track of (and paying) payroll withholdings for your employees is crucial to staying out of trouble with the IRS and your state of business. These payroll taxes include Social Security and Medicare, along with federal income tax and any applicable state taxes. The amount withheld is determined by tables according to information given by employees on their W4 forms. Even if you are a sole proprietor, you must pay a payroll tax on yourself.

These withheld taxes MUST be turned over to the IRS on a regular basis, usually monthly. The financial advisor website the Motley Fool claims that "making payments of withheld payroll taxes is the single most important thing for you to do as a business owner" (Fool 2009, para.16). The IRS has been empowered to levy serious consequences against business that divert these funds or fail to collect them.

Keep in mind that your business is responsible for additional taxes on behalf of your employees. Employers are required to match Social Security withholdings for all of their employees, and must pay a Federal unemployment tax for each of them as well.

Works Cited

Akasie, Jay. (2009, Apr. 6). Last Minute Small Business Tax Tips. Retrieved May 29, 2010 from http://www.forbes.com. [website]

Dratch, Dana. (2008, Mar. 26). A Dozen Deductions for Your Small Business. Retrieved May 30, 2010 from http://www.bankrate.com/finance/money-guides/a-dozen-deductions-for-your-small-business-1.aspx. [website]

Tax Tips for Small Businesses. (2010, Jan. 20). Retrieved May 30, 2010 from www.fool.com. [website]

Sources used in this document:
Works Cited

Akasie, Jay. (2009, Apr. 6). Last Minute Small Business Tax Tips. Retrieved May 29, 2010 from http://www.forbes.com. [website]

Dratch, Dana. (2008, Mar. 26). A Dozen Deductions for Your Small Business. Retrieved May 30, 2010 from http://www.bankrate.com/finance/money-guides/a-dozen-deductions-for-your-small-business-1.aspx. [website]

Tax Tips for Small Businesses. (2010, Jan. 20). Retrieved May 30, 2010 from www.fool.com. [website]
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