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10 Ways to Save on Business Taxes

Tax Deductions and Credits You Can Use to Reduce Taxes

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How to save money on your business taxes by considering these 10 tax-saving tips. 

1. Fund a Retirement Plan

Setting up and funding a retirement plan for yourself and employees can save you money on taxes, and it's easier than you might think. Just make sure it's a qualified plan (qualified by the IRS, that is), so you can take advantage of those tax savings.

2. Hire Employees and Get a Tax Credit

If you hire previously unemployed workers, you can take a tax credit based on their Social Security amount for the rest of 2010. The sooner you hire, the more your tax credit. 

3. Buy Equipment, Vehicles for Depreciation Deductions

Businesses have the opportunity each year to accelerate depreciation on purchases of business equipment and vehicles. The two most common types of accelerated depreciation are Section 179 deductions and bonus depreciation. Read the above article to understand depreciation and read more about the changes to depreciation in 2013.

4. Deduct Gifts, Awards, Bonuses

You may be able to deduct part of the cost of giving gifts to employees, customers, and vendors. In addition, you may deduct awards and bonuses to employees. All deductions have restrictions and limits so read carefully and consult your tax advisor before making any decisions.

5. Stock Up and Prepay to Reduce Net Income

Review your current expenses and, if you think you can benefit from reduced income, prepay some of those amounts. You can also increase expenses (and decrease income) by stocking up on supplies.

6. Write Off Obsolete Inventory and Equipment

Another way to cut taxes is to write off obsolete equipment and inventory that has lost its value.  These write-offs reduce your cost of goods sold and can decrease your net income.

7. Write Off Bad Debts to Lower Income

The end of the year is the time to review your customer accounts to find those customers who aren't going to pay.  You can write off the amounts they owe as "bad debts," and deduct these amounts from your business income to save on taxes.

8. Pay Bonuses, Write off as an Expense

Owners of corporations and top executives can receive bonuses and the company can get a tax deduction for these bonuses.  Read more about how this works.

9. Defer Income, If Taxes Will Be Higher

Timing income is a method of moving income from one year to another.  You first have to determine which year will have the highest taxes, because of two factors (1) your business income, (2) business tax rates.  So get out your crystal ball and talk to your tax advisor about this one.

10. Pay Bills Now for Lower Income in the Current Year

Timing expenses works the same way as timing income, only in reverse.  Put the expenses in the year of higher taxes, to reduce your net income in that year. 

11. Check with Your Tax Advisor

Before making any decisions that can affect your business tax return or spending money to save on taxes, consult your tax advisor or tax preparer.

The information in this article and on this site is intended as general information for discussion purposes. It is not intended to be tax or legal advice. Every business situation is different, tax laws are complex, and laws and regulations change.

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