Michigan TAX TIPS FOR BUSINESS PEOPLE - Mar T. Mullin & Associates C.P.A., P.C.

The major objective for most people in business is to maximize profits. Cutting your taxes will help you achieve that goal. Review these tax tips: then contact us for assistance in identifying and implementing the best strategies for you.

Choose your legal form of doing business carefully . The tax and nontax consequences of the form you select are significant. The basic forms of operation from which to choose include sole proprietorship, partnership, corporation, or limited liability company. Seek professional assistance before deciding, and review your chosen business form from time to time to see if it's still appropriate.
Consider “Section 1244” stock for a new business. If you're starting a business and choose to operate as a corporation, investigate the advantages of Section 1244 stock. There are requirements that must be met, but if your stock qualifies and your business later fails, you can deduct up to $50,000 of the loss against ordinary income each year ($100,000 on a joint return). Without the Section 1244 benefit, the entire loss would be subject to the capital loss limitations.
Incorporate and elect S status . If your sole proprietorship or partnership is producing a net profit in excess of a reasonable compensation for your time, you could save money by operating as an S corporation. You're required to take a reasonable salary for the work you do but no more than that. With an S corporation, the salary you take will be subject to both income and payroll taxes. The profits above that amount are subject to income tax but not payroll taxes.
If you operate in corporate form, keep accurate and thorough minutes for the corporation . Minutes should document transfer of funds or assets into or out of the corporation, officers' salaries, shareholder dividends, officer and employee benefits, and related-party transactions that might be scrutinized by the IRS.
If your business is incorporated , it is often a good idea for you to personally own the business real estate and lease it to your corporation. There are a number of tax and nontax concerns relating to real estate ownership. See us before you acquire new business property or before you change the ownership of property you already have.
Consider switching from the accrual method to the cash method of accounting if you meet the qualification. Under the cash method, you generally report income to the IRS in the year you receive payment from customers. Under the accrual method, you report income when a sale is made to a customer regardless of when the bill is paid. Most business owners prefer the simpler cash method.
Hire your children to work in your business . Wages paid will be deductible by your company and taxable to the family member. Your child's earnings will probably fall in a lower tax bracket than yours. Payroll taxes apply to such wages; however, if your business is a proprietorship or family partnership, they do not apply to wages paid to your children under 18. Compensation paid has to be reasonable for the services performed.
Never use the Internal Revenue Service as your banker . When cash flow is tight, you may be tempted to pay your supplies first and payroll taxes to the IRS last. The IRS will take steps to minimize the liability as quickly as possible. Pay the IRS first. If you absolutely cannot, contact your local IRS office before they contact you.
Keep good records for all business travel, meal, and entertainment expenses . Travel that you do in conjunction with your business is deductible, but business meal and entertainment expenses are generally only partially deductible.
Review your employee benefits package . Fringe benefits can help you attract and retain good employees and cut your taxes too.
Take a write-off for business equipment . Most business equipment is depreciated over five to seven years. However, small businesses are allowed to expense a certain amount of equipment costs in the year of purchase.
Consider a tax-deferred exchange if you plan to sell a piece of business property and replace it with other business or investment property. On a qualified exchange, current tax liability is postponed until you dispose of the new property.
If you conduct business from your home , become familiar with the rules for home office deductions. Accurate records my preserve your deductions.
Review your corporate income fore year-end . If you operate your business as a personal service corporation (a tax definition that applies to taxpayers performing services in the fields of health, law, engineering, architecture, account, actuarial science, performing arts, or consulting) be aware that such corporations pay a flat 35% tax on all taxable income. Compare this rate with individual tax rates before deciding whether to pay out all corporate income as salaries or bonuses.
Keep repairs separate . Ordinary repairs and maintenance on business equipment and buildings are deductible business expenses. Improvements, which materially add to the value of the property or significantly prolong its useful life, must be depreciated over period of years. To avoid losing tax deduction for repairs and maintenance, make major improvements completely apart from repairs and maintenance.
Don't miss business tax credits that are still available . Congress often uses tax credits to encourage certain activities. Regularly check for credits that could apply to your business.
Consider establishing a retirement plan to cut your current tax bill and provide retirement income. A plan must cover your employees too. If you're a small business, consider a SEP (Simplified Employee Pension Plan) or a SIMPLE (Savings Incentive Match Plans for Employees), two plans designed specifically for smaller companies. Check all the plan options available to you before making your decision.
If you're the only employee in your business, look into an individual 401(k) plan. These plans offer higher contribution limits than other retirement plans, yet they are less complicated to manage than traditional 401 (k) plans.
Don't overlook and IRA if you qualify for one . Compare the traditional IRA and the Roth IRA, and choose what's best for your situation. A traditional IRA gives you a current tax deduction for your contribution and tax-deferred growth. A Roth contribution is not tax-deductible, but qualified withdrawals are tax-free.
Don't subject yourself to tax penalties by misclassifying an employee as an independent contractor . The IRS is aware that employers prefer to treat workers as independent contractors to avoid paying fringe benefits and payroll taxes. If you're not absolutely sure how to treat a given worker, contact us.
Avoid the alternative minimum tax . If it cannot be avoided, you may be able to use it to your advantage in a given year. But you must know where you stand before year-end and give yourself time to execute tax-saving strategies.
Use your tax advisor wisely . We can best serve you by assisting you in carefully planning your important financial moves so they're structured to minimize taxes. Please check proposed transactions with us before you complete them.

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