Mid-Year Tax Savings Checklist for Small Business Owners
Texas CPAs Say Acting Now Can Lower Your 2004 Tax Bill Later

DALLAS — Many small business owners make the mistake of not thinking about taxes until it’s time to file their returns. But tax planning is an ongoing process, and the Texas Society of Certified Public Accountants says now is an opportune time to take some steps that can lower your 2004 tax bill.

Section 179 Expensing Deduction

Start planning now for any major business equipment purchases. Thanks to the “Jobs and Growth Tax Relief Reconciliation Act of 2003,” many small businesses will be able to immediately deduct up to $102,000 of the cost for most new and used equipment purchases or other qualified business property for 2004 and 2005.

Normally, these assets must be depreciated over a number of years. But act soon. Unless Congress makes the higher expensing amount permanent, the Section 179 deduction reverts to $25,000 in 2006.

Also, under the 2003 law, computer software, which previously had to be depreciated, generally over 36 months, is now eligible for the expensing deduction.

Bonus Depreciation Deduction

If you purchase assets that exceed the $102,000 expensing deduction limit, there’s additional good news for you. You may be eligible to take a bonus first-year depreciation deduction of 50 percent of the cost of new (not used) property. The other half of the cost is deductible on a regular depreciation schedule. For this bonus deduction, qualifying property must be placed in service by December 31, 2004, so act quickly.

Plan for Retirement

Take time to make payments to your retirement plan or to set one up. Contributing to an IRA, Keogh, simplified employee pension (SEP), or other retirement plan is a great way to reduce your taxable income and plan for the future. There are different rules, contribution limits, and deadlines, depending on the plan you choose. Make an appointment with your CPA to discuss the best alternative for your business.

Hire Your Children

With school vacation here, it’s time to put your children to work in your business. If you’re a self-employed taxpayer, you can reduce your taxable income by employing your under-age-18 children. As long as your child’s tax bracket is lower than yours, this strategy enables you to shift income from your higher tax rate to the child’s lower one.

Employers who put their minor children on the payroll of an unincorporated business do not pay any payroll taxes on the income these minors earn, and the wages are legitimate business deductions as long the child does bona fide work.

Reevaluate Your Business's Legal Entity

While small businesses often start out as sole proprietorships or partnerships, many owners eventually explore the transition to another entity. For example, if your business is not incorporated, you may want to consider the advantages of incorporating. Corporation status shelters you from some financial risks, and it’s possible you could save on taxes. Discuss the different legal entities with your CPA now so that you can have any changes in place at the beginning of next year.

Set Up An Efficient Recordkeeping System

To make the most of business tax deductions, you need up-to-date records. If you haven’t kept track of your business expenses, get caught up now.

Meet With Your CPA

Don’t wait until the busy tax season to meet with your CPA. Make an appointment now when you both have more time to discuss your business and tax planning opportunities.

ABOUT TSCPA

TSCPA (http://www.tscpa.org) is a nonprofit, voluntary, professional organization representing Texas CPAs. The society has 20 local chapters statewide and has 27,000 members, one of the largest in-state memberships of any state CPA society in the United States. TSCPA is committed to serving the public interest with programs that advance the highest standards of ethics and practice within the CPA profession.