Tax Moves Small Businesses Should Make

BOSTON (TheStreet) -- The old adage says that nothing is certain but death and taxes. But for small businesses trying to plan for 2010 and beyond, their tax situation is rife with uncertainty and confusion.

Tax cuts passed under the Bush Administration are up in the air. Each tax incentive defines what a small business is differently, in terms of dollars and employees. And thanks to Congressional inaction on the estate tax, nothing is certain about "death taxes" either.

"There's a lot of tax advice we're giving with a 'Yes, but ...'" says Larry Nannis, incoming chair of the National Small Business Association and an accountant at the Needham, Mass., accounting firm Levine, Katz, Nannis and Solomon.

There are several questions that small businesses can address as they try to reduce their tax obligations in the coming years. And there are some good tax incentives, too.

Does your business qualify for the health insurance tax credit?

To encourage health insurance coverage among small businesses, the White House has been touting a new tax credit that will cover up to 35% of the health premiums that small businesses owners pay for their employees and up to 50% starting in 2014. The Internal Revenue Service will soon send out millions of postcards to alert the entrepreneurial public about the credit, which is already in effect.

Eligible firms must employ fewer than the equivalent of 25 full-time workers, and their average annual wages must be less than $50,000. To receive the full 35%, firms must employ no more than 10 full-time workers. The credit phases out as the number of workers increases. This is a little ironic, considering small businesses also receive a payroll tax break for hiring unemployed workers. " The government will give you a tax credit if you hire a worker, but if you hire a worker you'll start losing your health care credit," notes Bill Rys, tax counsel for the National Federation of Independent Businesses in Washington.

How should small businesses prepare for the potential end of the Bush tax cuts?

If Congress does nothing, the tax cuts the Bush administration passed will expire in 2011. For small-business owners attempting to stay in a lower tax bracket in 2011, it may make sense to sprint for revenue in 2010. When a company files as an S corporation, a partnership or a limited liability corporation, profits as taxed as part of the owners' personal income.

"The effect is that increases in the individual tax rates would tend to affect you as a small-business owner," says Mark Luscombe, principal analyst for the tax and accounting group at CCH. "For 2010 that might mean it makes sense to accelerate income in 2010 if you're going to face increases in 2011."

How should a small business plan for estate taxes?:

Estate taxes are a huge concern for small-business owners. Nannis says the company of a small-business owner can make up 85% of his estate.

Thanks to Congressional inaction, there's no estate tax for 2010, so far. While Congress could levy the tax retroactively, the estate tax doesn't go back into effect until 2011, an odd boon for entrepreneurs who go to their graves before December. "Our tax planning vehicle for estate tax planning right now is asking the client when they're going to die," Nannis says.

What expenses should small businesses be sure to write off?

Thanks to an extension of IRS Tax Code Section 179 , businesses can write off up to $250,000 of qualified property costs during the 2010 tax year, provided the business's capital expenses don't exceed $800,000. The limit drops to $125,000 in 2011, so it may make sense to buy big stuff now.

Experts also recommend that small-business owners deduct expenses related to home offices, despite the common fear that such deductions might incite an audit. "It can be a lucrative deduction," Rys says. "As long as you're careful and work with your accountant, it's definitely worth it."

-- Reported by Carmen Nobel in Boston.

Elizabeth Carlassare is the creator of the Money Girl podcast. A business and technology writer, investor, and former mortgage loan officer, she has a long-standing passion for helping people make the most of their money. She is the author of the Internet business book, "Dotcom Divas," and has been interviewed on more than 60 regional and national radio programs, and featured on C-SPAN Book TV. Elizabeth holds an M.S. from the University of California, Berkeley. She has spoken internationally on the topic of women's entrepreneurship and access to capital. To request a topic or share a money tip, send an email to money@qdnow.com or call 877-6-RICHER.

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