"Tax evasion is a crime, but tax avoidance is the right of everyone."
American lawmaker Learned Hand
Savvy entrepreneurs deal with tax planning and strategy year-round, not just during March and April.
"Tax planning may be at least as important as tax preparation," said Joe Schwartz, president of the California Society of Enrolled Agents. "Think of it as preventive medicine for your financial health."
Although we hate thinking about taxes, small-business owners spend about 10 hours a week, or 520 hours a year, maintaining their business tax records, according to a survey conducted for TurboTax/MacInTax for Business. Forty-four percent of those polled said they should be spending even more time figuring out legal ways to reduce their tax burden. And 49 percent said keeping up with changing tax regulations is a "major concern."
So it's no surprise that 59 percent of those 501 business owners surveyed favor abolishing the current tax code altogether. If that happens, 36 percent favor imposing a national sales tax.
Until Congress acts to change things, we still have to file income-tax returns. So now is the time to schedule a strategy session, or at least a telephone call, with your CPA, tax preparer or enrolled agent (EAs pass a stringent federal exam before they are allowed to prepare tax returns). Planning ahead, especially in the fall before the year ends, can help you avoid nasty surprises.
Before you speak with your tax professional, I recommend reading a terrific book, "422 Tax Deductions for Businesses & Self-Employed Individuals," by Bernard B. Kamoroff, CPA. His easy-to-read book is packed with hundreds of tax tips you and your accountant have probably never heard of. Did you know bail bonds are tax deductible? Good news for white-collar criminals. Kamoroff, author of the best-selling "Small Time Operator," based the "422" book on frequent questions asked by his clients. He plowed through dozens of tax books to unearth money-saving tips aimed at helping small-business owners.
One of his favorite tax-saving tips is to put your children on your payroll.
"You have the ability to hire school-age kids to do real jobs and pay them up to $4,250 a year," said Kamoroff. "It's tax-free, you get to write off their wages as a business deduction, they keep the money and don't have to file a federal tax return. It's totally legitimate."
Kamoroff practices what he preaches. His twin 9-year-old daughters help him open the mail and fill book orders at Bell Springs Publishing, their home-based publishing company. (Kamoroff's "422" sells for $16.95, plus $3 for Priority Mail postage. For more information, call: 1-800-515-8050, or write to P.O. Box 1240, Willits, Calif., 95490.)
Since I'm on the road speaking and reporting so frequently, one of my favorite tips involves business travel. Most of us know that a business trip within the U.S. is 100 percent deductible. That means the tickets, lodging, ground transportation and incidental expenses can be written off. (Meals and entertainment are only 50 percent deductible.)
But did you know that if your business requires you to be out of town Friday and Monday, you can stay over the weekend and deduct those expenses, too? That means you can sit on the beach or party all night as long as it's less expensive to stay the weekend than fly home Friday night and return on Monday morning.
Here's another little-known fact : A "business day" on the road is actually shorter than a regular day in the office. Uncle Sam considers it a business day if you work at least four hours. Travel days count as business days, too.
No matter how great your tax adviser may be, you need a reliable software program to keep track of your income and expenses throughout the year. Intuit, publisher of QuickBooks, which has more than 2 million users, recently released QuickBooks Pro '99. The new, upgraded software is still easy to use, but includes some new integrated features, including Microsoft Word and Excel, so you can generate pre-written or customized collection letters and reports. It also provides easy links to Quicken's new payroll and direct deposit services, plus Internet access. (Call 1-800-446-8848, or visit www.quicken.com or www.quickbooks.com for information.)
Business owners should take note of a few non-business tax changes. For example, all long-term capital gains (investments held over one year) are subject to a 20 percent tax rate, down from 28 percent, according to Norm Tamkin, an accountant with Holthouse Carlin & Van Trigt in Los Angeles. And if you sold your house last year, married filers can exclude up to $500,000 worth of gain from the sale, as long as it was your principal residence for at least two of the five years prior to the sale.
Here are some more tax tips from the California Society of Enrolled Agents and other sources:
? Respond promptly to notices from tax agencies. A situation that might be easily addressed right away can become a very serious problem if ignored.
? If someone calls you and claims to be with the IRS or other tax agency, ask them to put their request in writing. These calls can be fraudulent, so don't provide your Social Security number or bank account number over the phone.
? File your tax return on time even if you can't pay the total amount due. The federal penalties for late filing can be 10 times the penalties for late payment.
? Don't assume your tax preparation software will automatically calculate the correct results. Be sure to answer the questions carefully.
Recommended reading: "Taxes Made Easy for Your Home-Based Business," by Gary W. Carter, is a detailed guide for self-employed professionals, freelancers and consultants. Dr. Carter is associate director of the Master of Business Taxation program at the University of Minnesota, so the book reads like a textbook. But taxes are serious stuff. (Macmillan, $15.95). The CCH Business Owner's Toolkit Tax Guide 1999 comes with a free tax organizer on CD-ROM. It is comprehensive enough to include advice on both business and personal taxes. (CCH, $17.95. Visit www.toolkit.cch.com)
Jane Applegate is a syndicated columnist and author of "201 Great Ideas for Your Small Business." For more resources, visit email@example.com.
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- Jane Applegate---Time to Read Up on Some Small Business Solutions
- Strategies---Doing Your Own Books Not for All Business Owners
- Tips Help Make This Time of Year Much Less Taxing
- 10 Tax Tips
- Entrepreneur's Notebook --- Professionals Can Help Hedge Bets in 'Audit Roulette'
- Computer Column