With the March 15th tax deadline just days away, businesses and their accountants are in serious crunch time, making all of the final preparations. This tax season is especially confusing and onerous, given the copious tax legislation changes in 2010. Here are a few last-minute tips that can help you keep more money in your business and put less into Uncle Sam's pocket:
1. Evaluate the tax benefits of business equipment purchases. In late 2010, changes were made to Section 179 (The Tax Relief Act of 2010 and The Jobs Act of 2010) which Congress hopes will have a positive impact on growth. The Section 179 deduction limit was increased to $500,000, and the total amount of equipment that can be purchased was increased to $2 million. This includes most new and used capital equipment, and it also includes software.
Companies that purchased new equipment are in luck, since the bonus depreciation was increased to 100 percent on qualified assets. Software can qualify, but it must be readily available for purchase by the general public and be subject to a non-exclusive license, and it must not have been substantially modified. Custom code software falls outside the deductions.
2. Think locally. Even at this late date, businesses should be doing their homework on the regional tax opportunities that are available. For example, the State of Georgia, through its Department of Community Affairs, offers tax credit incentives for companies in “opportunity zones.” Businesses located in these zones that hire at least two employees may receive an annual income tax credit of $3,500 for each job they create. The credits, which are available for new or existing business, are good for up to five years, or $17,500.
Local credits are also available for green activities, so businesses that invested in new environmentally sustainable operational practices or resource-efficient technologies may want to do a last-minute sweep of their tax forms to ensure that they're taking advantage of all available credits and incentives.
3. Choose your deductions wisely. When it comes to selecting your deductions, be sure to choose the option that provides the biggest return, since the law can offer multiple accounting methods. For example, small business owners may be asked to choose between deducting the actual costs associated with business-related vehicles vs. deducting a pre-set mileage rate. While the second option may be easier to calculate, it may not yield the best deduction.
Business owners should also double-check what they're claiming as business expenses. A business trip that includes some personal travel is only partially deductible. This is a common red flag for the IRS, and should be reviewed carefully before submitting your filing.
Once crunch time is over, don't forget — there's always next year. So plan early. If this tax season seems especially problematic due to the deluge of tax legislation in 2010, you can't assume that 2011 will be any easier. Stay in touch with your advisor throughout the year. Planning ahead and having a planner on board will help your business navigate through the waves of legislation in uncertain tax times.