Tax Deductions for Small Businesses

Two special tax breaks were enacted for employers that hired unemployed workers during 2010. One of these tax breaks is to be claimed on the employer's 2011 tax return; which, for most, is to be filed by 15 April 2012

The first incentive allowed the employer to be exempt from the employer's share of social security payroll tax for the new hires. (people hired between 3 Feb 2010 and 31 Dec 2010).

The second incentive is to be realized by the employer for tax year 2011 because it only applied for hiring and retaining a worker for over a year. If you hired the worker between 3 Feb 2010 and 31 Dec 2010 and if you retained the worker for at least a year you get a special $1,000 tax credit when you file your 2011 tax returns (the one due by 15 April 2012).

This credit cannot be claimed by hiring a new hire to fill a position for which you laid off a different worker. It can only be counted for positions that are added positions onto the payroll or to fill existing positions for which the last employee either quit or was fired for reason.

The employer will get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked no more than 40 hours for anyone during the 60-day period.

Ten small business write-offs:

Here is a laundry list of ten things that are, in most cases, deductible business expenses. If you had not given them a little extra consideration at the time, you may have just thrown away your documentation and missed out on deducting these things:

1. do you use a seperate cell phone for business (you should);
2. coffee and snacks you provide for any employees (and yourself) at your place of work;
3. if you have a website you have hosting (unless you're doing it on your own server in-house;  do you spend ad money for online marketing; do you pay an outside webmaster or do you maintain the site and update info on the website yourself?
4. costs you paid for any seminars or training programs for you or your employees;
5. courier costs as well as stationery and other mailing and/or shipping costs;
6. tax preparation costs if you outsource your tax prep;
7. do you subscribe to any business related magazines or trades at your place of business?
8. office cleaning contracts and expenses are obviously deductible;
9. if you have transportation and/or travel expenses for your business don't forget parking and tolls.  Parking and tolls get to be added on separately, even if you use the mileage method;
10. printing costs including brochures, marketing presentation materials, business cards;

all the little things like these add up to huge amounts of money over the course of a year. If you've taken the extra 15 minutes each week to enter all your expenditures into your automated account tracking system, you will save yourself a day or two of headaches next April.....

Write off your uncollectable accounts receivable.

This business deduction is a little more involved than the easy little things listed above. Practically every small business has bad debts that it cannot collect from clients. If you have a small business and made a sale to another party and delivered on your end of the contract, and then the date rolled around when you were suppose to receive payment.....but the guy didn't pay. What you've got is a questionable account. You've gotta start taking reasonable actions to collect what is owed to you. Let's say you've done that. You've called, you've sent dunning letters, you've tried to work out a new payment schedule. You cannot collect.

Now what you've got is a bad debt on your books. Because you already recorded the transaction as revenue on your books, but you really never got paid, your books are actually not reflective of the true position of your business. The correct action to take is to write off those uncollectable accounts.

If you are in a situation where you have not yet accrued some or all of the revenues, if you qualify, you can use the nonaccrual experience method of accounting. Put simply that just means you would decide not to record the income in the first place if you've already figured out your not going to be able to collect it. But you can only use this nonaccrual method if you are in a service type business, not if you are in a real goods trade type of business.

Other restrictions to be aware of: You can only write off debts to the extent that they are uncollectable, for example if you are owed $5,000 but you believe you are going to collect $2,000.....you cannot write off all $5k you can only write off $3k.

Nearly all small businesses are going to run into this sooner or later. The right thing to do is write it off. You cannot afford to be paying extra income tax on these incomes if you didn't receive them and are not going to receive them. Make sure you save your documentation on these transactions, for example any contracts and invoices and other correspondence that shows you made attempts to collect. If all of that is in order, you should be good to go if the IRS ever questions you about it.

Keep all pertinent tax documentation.

Tax related documents businesses should keep along with safe commonly accepted keeping times:

Copies of tax returns as filed - Keep forever.
Previous IRS audit settlement - Keep forever.
Real estate ownership records - Keep forever.
Contracts and leases - Keep forever.
All records relating to income, revenue, or gains (such as W-2s, 1099s, broker statements, bank statements, sales, ledgers, etc.) - Keep for six years.
Records pertaining to asset gain/loss computations (for investment real estate, collectibles, etc.) - Keep for six years after sale of asset.
Expense reports for reimbursed expenses - Keep for six years.
Business expense records (vendor invoices, receipts, etc.) - Keep for three years.
Depreciable asset records and cost of goods sold computations - Keep for three years, or keep forever if you use LIFO accounting.
Employment tax records - Keep for four years.Proof of loss from worthless securities or bad debt deduction - Keep for seven years.
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