REDUCING THE TAX BITE: 10 TAX TIPS FOR SMALL BUSINESSES
SAN FRANCISCO, March 31 /PRNewswire/ -- With April 15 fast approaching, taxes are certainly a top-of-mind issue for today's small businesses. Across the country, small businesses and the self-employed are re-evaluating their tax strategies and pinpointing new ways to help reduce the tax bite for next year's filing. Mindful of the array of tax issues being faced today, the National Society of Public Accountants (NSPA) and Visa Business Card have issued "10 Tax Tips" that small businesses should consider when trying to ease their annual tax burden. 1) Your home office could be deductible. The Internal Revenue Service will allow certain taxpayers who have home businesses to deduct ordinary and necessary expenses to run their home business, including a percentage of rent/mortgage, utilities and maintenance. (There's a big "however!" in qualifying for this deduction based on the recent U.S. Supreme Court decision relating to the type of work, availability of other offices, etc. Confirm the validity of this deduction with a tax professional for your particular business!) 2) Utilize SARSEP for employee retirement plan. If a business has less than 25 employees, a low-cost alternative to an employer-funded pension is a Salary Reduction Simplified Employee Pension (SARSEP) plan. These plans are funded by employee contributions from earnings and are not matched by the employer. Employees may put up to 15 percent of their annual earnings into this plan. And, since the amounts contributed to a SARSEP are pre-tax contributions, small business employees will effectively lower their current taxable income. 3) Maintain comprehensive records on business expenses. By keeping detailed records of business expenses, tax deductible items can be categorized as a means of cost savings. Facilitate tax preparation by keeping personal and business records separate. Many companies are increasingly turning to corporate card programs, such as the Visa Business Card, as a means of keeping track of deductible expenses. Cardholders are provided with an array of reporting and billing methods that can be customized to suit individual business needs, while automatically organizing business expenses. (In order to support the income and expenses you claim, be sure to store you tax records in a safe place for six years.) 4) Always consult with a tax advisor when planning a large business transaction. Be sure to review business deals with a tax practitioner before you complete the transaction (during the planning stages is even better), because even a minor alteration to a contract could result in huge tax consequences to a business. Changes to the Tax Code, IRS rulings, etc., can come up fast -- and be to your tax detriment. 5) Make annual IRA contributions. Anyone who earned income in the previous year may make a contribution to an individual retirement account, allowing long-term savings to grow at a tax-deferred rate. 6) Keep in mind the opportunity to reduce estimated tax payments.
If a business has an uneven cash flow, with the heavier income in the last two quarters, it is entitled to pay lower estimates in the first two quarters. A business has two options available to you regarding the payment of estimated taxes. The first option is to simply pay 25 percent of last year's liability each quarter. The second option is to project your income for the year based on your total income to date. Calculate 90 percent of that amount and pay 25 percent of that figure for the quarter. (See a tax practitioner for specifics because some individuals are subject to special tax requirements).
7) Employ family members in your business. Hiring family members as employees of a small business allows the owner to shift income among family, while providing a deductible expense to the business. By putting the family on the payroll, income is legitimately shifted from a higher tax bracket into their lower bracket (reducing the family's overall tax burden, if employing immediate family). However, when employing family members, be certain they actually work for the business and are paid fair wages! 8) U.S. Savings Bonds - tax-exempt interest if used for higher education. If you are at least 24 years old and have purchased Series EE savings bonds since 1989 (as sole owner or with your spouse), you may use the interest as a tax-exempt method of paying for your child's education. This tax-exempt interest may be used for any qualified expenses, including tuition (minus scholarships, etc.). But beware! For the 1993 tax year, the exemption begins to phase out at $45,500 adjusted gross income if single; $68,250 if married. 9) Deduct bank fees when your credit line is used for business and save your credit card statements to establish expense records. Knowing that bank fees and credit card interest fees are deductible for small businesses, financial management tools such as Visa Business Card can provide a small business with greater financial flexibility through revolving balance options and flexible spending limits. Plus -- the IRS has recognized the account statements as legitimate support for tax deductions and expense tracking. 10) Maintain strict records on employee expense reimbursements. Keep detailed records of receipts/transactions of reimbursements to employees, otherwise your business's payroll tax liability could increase. If a reimbursement plan is not maintained properly and carefully, employee reimbursements may be reclassified as earned income to the employee, which will increase their earned income. In addition, by maintaining a good record keeping system, you will also keep the risk of possible abuse to a minimum. The National Society of Public Accountants consists of 21,000 individual members, most of whom are sole practitioners or partners in small-sized public accounting firms. NSPA members provide accounting, auditing, tax return preparation, representation before the Internal Revenue Service, tax planning financial planning and managerial advisory services to an estimated four million individual and small business clients nationwide. The members of NSPA are pledged to a strict code of professional ethics and rules of technical competence. Visa Business Card is the world's most widely accepted corporate card, offering the highest acceptance rate and the largest number of cash access locations of any other business card. It is designed to avoid mixing personal and business expenses and to provide cardholders with a wide range of emergency and travel-related services. Visa Business Card provides businesses with the option to pay in full when billed or to revolve credit balances, a range of reporting methods and billing procedures, and a choice of adequate spending limits as a method of controlling expenses. Visa is the largest consumer payment card system in the world with more than 10.5 million acceptance locations and 304 million cards issued worldwide, including 149 million in the United States. -0- 3/31/93 /CONTACT: Tricia Wiseman of Visa U.S.A., 415-570-3510, or Jeffrey A. Lear of National Society of Public Accountants, 703-549-6400/
CO: National Society of Public Accountants ST: California IN: FIN SU:
TM -- SF005 -- 1332 03/31/93 08:01 EST
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|Date:||Mar 31, 1993|
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