It's already time to start thinking about taxes for 2001. If you plan carefully and take these steps, you can minimize your tax bill for the coming year.
Review your compensation arrangements. Compensation paid to yourself and your workers may account for a sizable portion of your business budget. Take some steps to minimize taxes on this compensation.
Review employee benefit plans. Consider plans that will boost employee morale, foster loyalty, and save you taxes.
Plan out purchases for the year. Budget for the acquisition of equipment and supplies. The cost of equipment purchased in 2001 can be expensed up to $24,000 instead of depreciating it over several years. This is so even if you finance the purchase.
Assess your hiring practices. When taking on additional help, consider hiring certain economically disadvantaged workers so that you can claim a special tax credit. For example, hiring a long-term family assistance recipient can entitle you to a credit of up to $8,500 over two years. Check with your state employment agency about certification requirements, and see IRS Pub 334, Tax Guide for Small Business for more information on this type of tax credit.
Avoid mistakes you might have made in the past. Sloppy record keeping may have cost you deductions you might otherwise have been entitled to. Act now to bring your books and records in order. For example, make sure that mileage records are kept for a personal car used partly for business. In addition, underpaying estimated taxes may have resulted in penalties for you in previous years. Make sure your estimated tax payments for 2001 are sufficient to avoid penalties.
Reassess your form of business. If you've been in operation for a while, it may be time to change your business structure. For example, if you're now an S corporation and have grown quite profitable, you may consider terminating the election to take advantage of fringe benefit programs limited to C corporations (for example, group-term life insurance). If you're self-employed, you may want to incorporate to obtain personal liability protection. If you want to elect S corporation status for 2001 you have until March 15, 2001. Consult your tax professional to determine the most appropriate structure for your business.
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