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1) Find a good accountant and hold him accountable-Get referrals, determine if they have experience dealing with your industry, how prompt to respond to your requests, does he deal with you not some recent college grad. If all of your competitors are driving BMWs and you're puttering about in a Yugo find out who their accountant is.
2) Poor record keeping - everyone is looking for exotic tax deductions. The number one reason businesses do not get the deductions they deserve, next to not having a good accountant, is poor record keeping. Typically, this is due to the business owner assuming these responsibilities. Go sell, invest in a competent bookeeper.
3) Poor exit strategy - when starting a business, plan in advance how much could you afford to lose. Too often like the gambler at the casinos, the owner is doubling down enroute to losing thousands more than he anticipated.
4) Hire a payroll service - spending hours figuring out what to withhold from your employees, risking paying your taxes late incurring penalties is not a good use of your time.
5) Knowing the Sales Tax Rules - Every state has bizarre guidelines for what is and is not taxable. You could be paying sales tax, incurring a 7% -8 % for items in your business unnecessarily.
6) Domestic Manufacturers' Deduction - If you’re a traditional manufacturer or a software development, architecture, engineering or construction business you may be eligible for a tax deduction that could lower your effective tax rate by up to three percentage points. There are 247 pages of instructions in the IRS "helpful" manual to explain the code. Suffice to say that if you're business is in one of the categories listed above, you may be due additional deductions going back every year to tax year 2005. Hurry up as you only have until April 15, 2009 to amend the tax returns from 2005.
7) Convert wages to reimbursed expenses for outside salespeople - If employee has legitimate employee expenses i.e. auto travel that he has not been reimbursed for, currently that employee deducts it as a miscellaneous expense. At best the employee reduces his taxes due IRS by 35% of expenses incurred. Meaning the other 65% of money spent by the employee came out of his pocket. If the company paid those expenses, the employee would get 100% back in his pocket. The employer benefits by reducing his employer payroll taxes and workmen's compensation insurance (costs determined by employee wages).
Ex. Reimburse employee $10,000 for auto travel instead of paying salary. Employer saves $765 in matching employer payroll taxes plus lower workmen's comp.
8) Buy a Hummer - In order to write off the purchase of a new SUV (now limited to $25k plus bonus depreciation) it must weigh at least 6,000 pounds. A Hummer weighs 6,001 pounds.
9) Military Employee Tax Credit - allows small business owners with fewer than 50 employees to claim a tax credit of 20 percent of wage differential payments as long as they continue to pay reservists some or all of their former compensation and the payments do not exceed $20,000. This credit is for employers to keep paying these employees while they serve in the military.
10) College tuition can be tax deductible - Code section 127 plans are qualified employer educational assistance plans that allow employers to offer up to $5,250 per year to employees in tax-free educational assistance. Employ your child (must offer to all part time employees) and get a deduction while avoiding paying payroll taxes. Child must be age 21 or higher.
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