Are you on the path to profits?
Are you following the path to profits for your small business? Seemingly small decisions can end up costing you hundreds or thousands of dollars. A comprehensive tax plan is one thing that you cannot put off until you make more more. In fact, many of your options may be reduced by the decisions you make today.
Improve your bottom line
Let’s face it the tax code is complicated and ever-changing. But, tax planning can help you reach your goal of financial freedom sooner. Do you want to improve your bottom line? Then, pay attention to your effective tax rate. Your effective tax rate can be thought of as the rate that is actually paid. This is very different from a marginal tax rate, which for federal taxes are rates that exist for each tax bracket and change as income rises.
Equipment expenditures and office buildings
There are liberal rules for depreciation deductions that can help you recoup some of your expenses immediately. If you expect your income to increase, now may be the time to invest in that piece of equipment you need. For example, if you are a doctor planning to open a new facility you may be able to use cost segregation to increase deductions on office buildings. Under the current depreciation rules, your depreciation deductions would be limited to a 39 year life on a straight line basis. Under the Hospital Corporation of America case you could perform a cost segregation study and allocate typically 20% to 40% of the building cost to a shorter five year life property.
R&E tax credit
Few entrepreneurs and small businesses take full advantage of the Research & Experimentation (R&E) tax credit. Many presume that R&E credits only benefit manufacturing or biotech companies which produce complex products. In fact, the R&E credit can also apply to a range of other industries such as financial services, software development, engineering, wholesale, distribution, and agriculture. As an entrepreneur you probably spend a lot of time generating ideas to grow, expand, or develop your business. Many of your everyday business activities may qualify for R&E tax credits. You company may also qualify for tax credits during the process of improving or enhancing an existing product.
Healthcare tax credit
The Small Business Health Care Tax Credit is worth up to 50% of your contribution toward employees’ premium costs (35% for tax exempt employers). The tax credit is highest for companies with fewer than 10 employees who are paid an average of $25,000 or less. The smaller the business, the bigger the credit. For example, for an employer who qualifies for the maximum credit worth 50% of their premium contribution (2014):
- Wages: $250,000 total or $25,000 per employee
- Employer contribution to employee premiums: $70,000
- Tax credit amount: $35,000 (50% of employer’s contribution)
Basically, you sent less than $292 per month to provide health care coverage for each employee. Many employees consider healthcare insurance important in deciding whether to take a job or stay at a job. Providing health insurance may help decrease your turnover rate and improve employee morale. Employees are the backbone of your organization. With happy employees your business will provide superior service to customers. This means more money in your pocket.