MID-YEAR TAX MOVES FOR BUSINESS OWNERS

Dear friends of RC Jones & Associates

Summertime is here but there's no vacation from tax planning. Here are five tax moves small business owners might make now to reduce tax liability for 2009.

1. Cut back quarterly installment payments. Self-employed taxpayers must pay federal income tax and self-employment tax in quarterly installments to avoid an "estimated tax" penalty. Normally, no penalty will be assessed if annual payments equal at least 90% of the taxpayer's current tax liability or 100% of last year's liability (110% if the AGI for the prior year exceeded $150,000). But the new economic stimulus law allows certain small business owners to base payments on 90% of 2008 tax liability.

2. Put your child on the payroll. Is your teenage child looking for a summer job? Have the child work in the plant or the office. Besides gaining valuable experience, the teenager can earn up to $5,700 tax-free in 2009. For the business, the wages are tax deductible like wages paid to any other employee so long as the child is paid a reasonable amount for the services actually rendered.

3. Combine business with pleasure. When you travel away from home on business, you can deduct the travel expenses—including air fare, meals and lodging—so long as the primary purpose of the trip is business-related. So you may tack on a few days of sightseeing or relaxation as long as you spend more time on business than pleasure. Of course, no deduction is allowed for personal side trips or activities or meals and lodging for non-business days.

4. Hire a crew of summer workers. If your business employs workers from disadvantaged groups, it is entitled to the Work Opportunity Tax Credit (WOTC). The regular credit is 40% of the first $6,000 of wages paid to a qualified worker during the year. But you can also claim a special summertime credit for hiring certain youths age 16 or 17 who work between May 1 and Sept. 15. The WOTC for these workers is 40% of the first $3,000 of wages.

5. Switch to the actual expense method. The standard mileage rate for business driving is 55 cents per business mile (plus tolls and parking fees) for 2009 (down from 58.5 cents per mile for the last six months of 2008). If you started using the standard mileage rate this year, it may not be too late to switch to the actual expense method. Hunt down records for gasoline, oil and repairs. Even if you can’t substantiate all costs from earlier in the year, a midyear switch still can increase deductions.

Don't wait until the end of the year to address tax planning for your business. One of our experienced tax practitioners can assist you right now.

Very truly yours,
Robert C. Jones

www.RCJonesInc.com