A Holiday Gift To Your Business: Year-End Tax Strategies For Entrepreneurs

Dec 28 2013, 12:07am CST | by

A Holiday Gift To Your Business: Year-End Tax Strategies For Entrepreneurs
Photo Credit: Forbes Business

As an entrepreneur, the best gift you give yourself this holiday season may not have been under the tree. In fact, most of us will have spent more time decorating for the holidays than we will allocate to tax planning during the Christmas season, yet taxes are the biggest expense most small companies face.

So as a final present, here are some words of advice on year-end tax planning that I’ve gathered with the help of Aaron Young, CEO of corporate solutions service and education provider Laughlin Associates, of Reno, Nevada. I met Young several weeks ago as he presented at the December CEO Space business growth conference in Las Vegas. As disclosure, I have been invited to join the faculty team of CEO Space as a future coach and presenter. I have no business relationship with Laughlin Associates; however, I now have an affiliation with Young via CEO Space.

Here’s what Young had to say to small companies as they approach the year end: “For as much negative as we hear about taxes, the fact is that the government has actually given amazing incentives to people with enough courage to become entrepreneurs. Small business owners who don’t take time to learn about the tax code are leaving money on the table. Don’t think that tax breaks are only for the big guys. Many of the same deductions they use can benefit small businesses and even solo-preneurs.”

Several of the CPAs I spoke to agreed: “Even in the current economy, you would have to be brain dead not to start a business,” said tax attorney Sandy Botkin, Esq., CPA.

Reno-based CPA Mark Borel, Borel Associates, noted the tax advantages available to small business as well: “As the internet continues to revolutionize the business world, we’re seeing a substantial increase in self-employed individuals who need guidance in establishing a business that allows them to to realize the full range of deductions available to them within the current tax laws.”

So in the interest of Christmas, Young offered the following list of tax ideas to entrepreneurs. Some of them are even possible to implement before the end of the year. Here goes:

  1. Hire Your Kids. Instead of giving your kids money to buy presents, let them use their own money; money they earned working for the business. Make sure the job is within their ability and documented with a job description. (More on this possibility in my recent article about Family Entrepreneurship here.)
  2. Throw a Holiday Party- Throwing a party for team members and clients is tax deductible. This is a great time to say “thank you” for all their hard work.
  3. Holiday Travel. You can write off the cost of travel as long as it’s legitimately travel for business. If you are combining personal and business travel during the holiday, you can write off a percentage of your trip as a business expense.
  4. Professional Education. You can write off the cost of attending seminars and educational opportunities that make you a better business owner.
  5. Longevity Award. If you or your employees been at the business for longer than five years, you can reward that loyalty with a gift.
  6. Safety Award. Lack of safety can be a major expense to any business. So if you implement a written policy of safety, you can reward employees for meeting these safety requirements as a business expense.
  7. Entertaining. You can deduct the cost of tickets for a show or sporting event as long as you use the event as a way to promote your business.

Can any of these ideas benefit you? If so, there are a few rules Young advises that you must not overlook when taking advantage of a tax-deductible benefit. Make sure you document the reason for taking the deduction, and be sure you keep accurate records that explain the reasonable necessity for the deduction. (In other words, no, the fact that you can produce the AmEx statement to document the expenditure doesn’t count.)

Cash awards are almost always taxable to the recipient, so be mindful of this aspect of your giving. Gift certificates for travel, vacations and meals are not considered deductible to the recipient, and in this respect are preferable to cash. You could also give a tangible item, or allow the person to choose the gift from a catalog.

So before it’s too late, consider the ways a bit of last minute tax planning could save you at least a little more money this year (and over the longer term could save you a fortune, which is money you can use to grow and benefit your business).

In conclusion, Young notes that as an entrepreneur you owe it to yourself and your business to understand as much as possible about the deductions you are entitled to take. (The hints we’ve presented come from Section 535 of The Internal Revenue Code IRS regulations.) You should always implement a strategy with the help of your chosen professional. But leaving your deduction opportunities to chance or putting the entire responsibility in your CPA’s hands could prove to be a costly mistake. So Happy Holidays. For ideas and tips as you prepare to pay your personal taxes, check out this article by Forbes Contributor Kelly Phillips Erb, the @taxgirl. Entrepreneurs can reach Aaron via www.laughlinusa.com or can message him directly at AaronYoung@laughlinusa.com.

10 Ways To Beat Capital Gains Tax

Source: Forbes Business


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