Planning for your disability or death can result in lower taxes for business owners. Gift, estate and income taxes can be properly managed with a succession plan. Costs for life insurance and professional fees may be lower under a plan. This strategy can also minimize squabbling among family members and key business managers.
Income splitting is one type of planning tool - simply move income to a child or other family member who will pay at a lower tax rate. The person must perform reasonable work and their compensation may not be outrageous. Hiring parents requires that you review their Social Security benefits and set their pay accordingly. A dependent child can earn up to $4000 before paying income tax, but, if the child is over 18, you may have to cover payroll tax and workers' compensation.
Poor record keeping often causes businesses to fail. The tax code requires that you keep "records appropriate to your trade or business." While the code does not specify a particular format, the records must be accurate. Proper records allow you to prepare tax returns more quickly, and may alert you to problems earlier. The balance in your checkbook plus the money you draw out of the business rarely is your taxable income.
Equipment purchases may qualify for an immediate deduction instead of being depreciated. You may take up to $20,000 as "Section 179" deduction in 2000; that increases to $24,000 in 2001. Limitations exist for autos and small trucks. Review your equipment needs to apply this deduction.
Recent changes in the tax code allow you to deduct the costs of maintaining a home office. Generally, you must not have another business location. You can write off a p ...