Tax Tips For Investors & Entrepreneurs

 

 

1.  Set up a corporation: 

The tax rate on the first $25,000 of retained profits is only 22%. 

You can set up a medical expense reimbursement plan for yourself

without including employees.  Your corporation can own and claim

depreciation deductions on your car.  Even if you're in business

part-time, you can set up a tax sheltered savings plan. 

 

2.  Work a swap of products or services at every opportunity. 

Both you and the other guy will save a lot in taxes.  Neither of

you will have as much recorded profit on a swap transaction. 

Hence less tax. 

 

3.  Avoid employees: Have your work done by self-employed,

independent contractors and save on Social Security taxes,

unemployment taxes, and Workman s Compensation Insurance. 

 

4.  If you carry and inventory use the L.I.F.O. (Last-in

First-out) method of valuing your inventory.  Your nondeductible

inventory will consist of the oldest items bought before price

increases, and you will be deducting the highest priced materials

of merchandise. 

 

5.  If you are trying to sell stock or are going to invest in a

small corporation, ask your tax advisor about the special 

Section 1224 Election.   If the corporation goes under, the

investor can deduct up to $50,000 against ordinary income and

if it succeeds he gets a capital gain when he sells out. 

 

6.  To nail down a capital gain you must hold the property more

than six months, not just six months.  That one extra day can

make a big difference. 

 

7.  Keep your eye on the new  Pension Legislation being worked

on in Congress.  It's shaping up as a real bonanza for small

business owners.  Not only so you save on Federal Income Taxes,

but you may save on Social Security Taxes, and you will usually

save on State or City income taxes.  Earnings on pension plan

savings can accumulate free of tax until you draw them out. 

 

8.  Check with the local Federal Unemployment Office about

hiring workers under the W.I.N. Program.  You can get a tax

credit of 20% of a qualified employees first years wages.  It's

a real steal. 

 

9.  You can accumulate up to $100,000 of profits (after paying

a 22% tax on the first $25,000 per year) in a corporation and

pay a tax on only half of the accumulated amount (by capital

gains route) if you liquidate instead of paying yourself a

salary of dividends.  This is a very attractive pitch for

investors in short term (5-10 years) ventures. 

 

10.  When in doubt, DEDUCT.  The probability of an audit for

small businesses with less than $30,000 is very low.  Chances

are your deduction will go through and even if it doesn t it

will only cost you the tax you would have paid plus 6% of that

tax.  Just be sure you have a valid reason for the deduction.

But, don t get caught on fraud charges, it isn t worth it.