Still not too late to save: Year-end tax strategies for small business owners

Still not too late to save: Year-end tax strategies for small business owners

Even with 2010 coming to a close, there is still time for small business owners to benefit from certain tax strategies implemented before the end of the year. Some are "tried and true" planning strategies and others are the result of recent legislation aimed at providing relief to small businesses. New legislation notwithstanding, here are several tax strategies to consider:

Bonus depreciation: Congress recently enacted a law that extends the 50-percent first-year depreciation bonus through December 31, 2010. The extension is retroactive to January 1, 2010. Qualifying purchases of tangible "new" property must be made and placed into service on or before December 31, 2010.

Section 179 deduction: Under Section 179 of the tax code, a business may "expense," or currently deduct, the cost of qualified assets placed in service during the year. Due to recent tax legislation, the maximum Section 179 deduction allowed for 2010 is $500,000. Note: The Section 179 deduction is reduced on a dollar-for-dollar basis if the cost of assets placed in service exceeds $2,000,000.

HIRE Act tax breaks: The Hiring Incentives to Restore Employment (HIRE) Act of 2010 creates two key tax breaks for employers. First, the employer's share of the 6.2 percent Social Security tax on wages is waived if you hire a "previously unemployed" worker. Second, an employer may qualify for a special tax credit for retaining that worker. Both tax breaks are no longer available after 2010.

Travel: Travel expenses incurred by your employeessuch as airfare, lodging and 50 percent of the cost of mealsmay be deducted for business-related trips. When appropriate, move up business trips planned for January into December. This allows you to write off travel expenses on your 2010 return instead of waiting until 2011. There is one caveat in that unreimbursed travel expenses must be deducted as miscellaneous expenses subject to the usual 2 percent-of-AGI limit.

Bad business debts: In these uncertain economic times, a business may have difficulty collecting some debts. As a general rule, the bad debts of a business may be deducted from gross income when they become worthless. Business owners should keep records of all collection efforts, such as letters, telephone calls, e-mail communications and collection agency activities, to support deductions based on the worthlessness of the debts.

Repairs and improvements: Generally, if you simply repair a business asset, you may currently deduct the entire cost. In contrast, the cost of an improvement to business property must be capitalized. So try and take care of minor repairs before the end of the year to offset your taxable income for 2010. Caution: If you make repairs and improvements at the same time, the IRS may lump in the cost of the repairs with the improvements as a general betterment plan.

Section 199 deduction: A deduction under Section 199 may be claimed by a business entity with "manufacturing" activities. For 2010, the deduction equals the lesser of 9 percent (up from 6 percent in 2009) of either taxable income from qualified production activities or taxable income.

To take full advantage of these year-end strategies, you should consult with a professional tax adviser, especially given the recent and expected changes in legislation.

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