Tax saving ideas to discuss with your tax pro
You’ve undoubtedly heard that small business owners should do this or that to save big on taxes. As we’ve said, there’s no universal magic formula, the solution depends on your particular situation. If you’re smart enough to use a professional tax advisor, you can probably depend on him or her to be proactive and suggest what you should consider if you give them the opportunity. Here are some of the question you may want to ask them about.
Should you change your form of business entity?
You’ve heard that there may be tax advantages to incorporating, and perhaps, more specifically, to electing to operate as an S-corporation. In your case, would incorporating be worth the extra fees (including higher accounting fees as well as government fees) and added paperwork requirements?
How should you handle the home office deduction?
You own your home and use a room in it as your office. Is it worth deducting a percentage of your monthly mortgage as a home office expense or would it be better to skip the deduction so when you eventually sell the house you won’t lose out on residential tax exemptions?
Depreciation -- should you avoid this if you can?
For items you buy that will last for more than a year, should you take advantage of the option to deduct their cost this year, the year you paid for them? Or would it be better to depreciate them and deduct portions of the cost over a set number of future years?
Normally you’d assume you’d want to deduct the expense the year you paid it. But if this is one of those negative income years and there’s no advantage in lowering your income even more, then you’d want to bet on future years being better. Then those depreciation deductions from this year’s purchase could come in handy.
By the way, depreciation is such a tricky concept and there are so many different timetables -- some optional, some mandatory -- if you want to retain your sanity and not create errors, turn this over to your accountant.
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