Business Basics

>>Businesses can save potentially hundreds of thousands of dollars each year by taking advantage of a range of tax deductions. Experts say a lot of them go unused because many people don't know about them.

Want to visit Las Vegas? Find a legitimate business reason to go, and the trip can be deductible, says James Wesolowski, a certified public accountant in Cape Coral.

"With any tax deduction, you develop a business rationale and reinforce it with record keeping," says Wesolowski, who has lectured at International College and now teaches workshops on the subject for Wayne State University in Michigan.

"Your chances of an audit might become a little bit greater [by taking the deductions], but if you live to be 100, chances are you're going to be audited only twice," he claims.

Good tax planning begins when a business owner makes the critical decision about incorporation.

Wesolowski recommends that the owner of a mid-sized or small business file as an S corporation. Under this corporation, a "reasonable salary" for a business owner could be roughly 50 to 65 percent of income, he says.

"The rest [of the business income] escapes a 15 percent self-employment tax, and there is no double taxation with an S corporation as there is [for] a C corporation."

Another way to reduce a tax bill is to delay recognition of income and to accelerate expenditures. "At the end of the year, you should buy supplies for next year," Wesolowski says. "Pay off advertising for next year. Pay off any leases you might have." Put them on credit to delay payment for at least 30 days, he says, and "you could take the deduction for the current year." To reduce income, collect bills after Jan. 1.

Another deduction includes writing off part of a house that is used regularly for business, including mortgage interest, real estate taxes and utilities, homeowner's insurance, flood insurance, repairs and depreciation.

For family-run businesses, special tax breaks are available. When a portion of a child's salary is put into an individual retirement account, the salary can be deducted as a business expense.

For example, a business owner could pay a child employee approximately $5,000 a year, which would put him or her in a no-income tax bracket. The remainder of the salary would not be taxed, as it is put into the child's retirement account, and the dollars eventually could be spent for college or a first home.

Business owners also can trim that tax bill by putting income from the business into a pension or retirement account.

"Let's say you made a $140,000 profit," says Armando Tagliarini, senior vice president for Budgetax, an accounting firm with offices in Southwest Florida. "Once a plan is established by Dec. 31, then you take that lump sum of money and put [it] into a pension plan, so your profit would be zero," he says.

There are no limits to how much business owners can legally take from a business income and put into a retirement account.

Other write-offs include advertising and postage, business computers and vehicles. "To grow with your business, buy equipment," Tagliarini says. Also consider buying your building. "You can depreciate the building and save on taxes," he says. If the building rises in value, it adds to the owner's nest egg. "That could be people's retirement right there-the sale of the building, plus the sale of the business," he says.

Thousands of dollars can also be saved through the method of accounting inventory, says Karen Bowman, the Florida tax leader for RSM McGladrey, which has an office in Naples.

"The method of [calculating] inventory is very important," Bowman says.

Calculating depreciation also can result in savings. Through a "cost-segregation study," mid-sized businesses may be able to depreciate property faster and may dramatically increase current deductions for assets such as decorative fixtures, cabinets, shelves, security equipment, parking lots, landscaping and architectural fees. Depreciation on a business building typically extends over 39 years.

"If you do a cost-segregation study, some of the [costs for] electrical [and plumbing] can be depreciated over five or seven years," Bowman says.

Business owners should also review tax credits and incentives offered by state and local governments. For example, if your business is located or if employees live in a blighted area, such as one designated as an "enterprise zone," a credit on your tax return could take place as well.