The following guest post is by Bernard B. Kamoroff, C.P.A. and is excerpted from the 2009 Edition of Mr. Kamoroff’s book 422 Tax Deductions for Businesses and Self Employed Individuals.
Tax Filing Season is here, and there are still several things you can do to reduce your taxes for 2008. Here are seven tax tips that can possibly save you a lot of money on your 2008 taxes:
1. For businesses on the cash accounting system (most small businesses), expenses are usually deducted the year paid. However, if you charge any business expenses to your bank credit card (VISA, MasterCard, American Express or Discover) you can deduct those expenses the year incurred even though you pay them in the next year. Go through your December charges and add them to your December expenses.
2. Normally, the cost of your inventory (goods for sale, parts) cannot be written off until sold. But if you have any damaged inventory, inventory that is out of date or out of fashion, goods unsalable for any reason, you can write off this inventory for 2008.
3. Your business expenses are deductible even if you paid them from your non-business bank account, personal credit card or debit card, or cash. Take a few minutes and go through all of your expenses for the year. If the expenses were for your business, deduct them. (Does not apply to corporations).
4. Many domestic businesses that produce, create or contract for goods are eligible for a 6% “manufacturer’s deduction.” The term “manufacturer” is broad, and many non-manufacturing businesses are eligible. Some construction, engineering and architecture firms, software developers, and video producers are also eligible. This “bonus” deduction is in addition to the deductions already allowed for manufacturing and production expenses.
5. In addition to your deductible business expenses, you may qualify for special “Tax Credits” available to businesses. Tax credits are very specific and limited, but if you qualify, the credits reduce your taxes dollar for dollar. Tax credits can be a real tax pot-of-gold.
6. You can put some of your business profit into an IRA or a SEP-IRA retirement account, and not pay income taxes on the profit until you withdraw the money in a future year. You have until April 15, 2009 to set up and contribute to an IRA or a SEP-IRA for the 2008 tax year. You can figure your 2008 income and taxes, and then decide if you want to shelter some of it in a retirement plan.
7. Finally, and one almost sure way to reduce your taxes, is to re-examine every purchase, every expense you made in 2008. Make sure you’ve taken all the business tax deductions you are entitled to: expenses you didn’t record in your ledgers, expenses you didn’t think were deductible, “personal” expenses that qualify as business expenses. The IRS is not going to tell you about a deduction you failed to take. It’s entirely up to you. The tax savings can be tremendous.
These “Seven Tax Tips” are excepted from the new 8th Edition of 422 Tax Deductions for Businesses and Self Employed Individuals, by Bernard B. Kamoroff, C.P.A. ($18.95, Bell Springs Publishing, www.bellsprings.com, 800-515-8050). The tax tips are summaries of the current tax laws; read the full details before relying on the information.