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Monday, March 26, 2007

Small Business Tax Write-offs

NEW YORK (CNNMoney.com) -- If you own a small business and have already filed your taxes, then Uncle Sam is probably the last person you want to think about right now. But there's no better time to make some moves that could significantly pay off in 2007.

For instance, buying a Ford Escape hybrid instead of a Honda Accord could save you $3,000 next year. That's just one of the many tax credits out there, which could reduce or even eliminate your tax bill next year.

Alternative Motor Vehicles: By now, a lot of small business owners are aware of the hybrid vehicle tax credit, but many might be surprised by how many types of vehicles currently qualify. For the complete list from the IRS, click here.

For instance, business owners may not know that many SUVs (more than 6,000 pounds) qualify for the deduction, which is known as a 179. That means you can expense up to $25,000 of the cost of the vehicle.

So if you are thinking of new wheels, just keep in mind that the tax benefits from buying a hybrid car or SUV apply to those purchased and put to use before Dec. 31.

Basing Your Office in a Renewal Community Zone: If you are looking to open an office or move from your current location, check if it makes sense to move into a federally mandated renewal zone or empowerment zone.

"It's pretty amazing what qualifies," said Brian Liu, co-founder and CEO of LegalZoom, which provides online legal assistance for small business owners.

"You would be surprised by what's out there and there are some significant tax savings," he said.

Small business owners in these areas can qualify for reduced taxation on capital gains and tax credits for hiring local residents - as much as $1,500 per employee.

There are also new construction credits, tax abatement credits and accelerated depreciation on durable goods. These incentives are designed to encourage businesses to open or expand in distressed communities.

Check out the Department of Housing and Urban Development's Web site for more information.

Retirement and Pension Funds: If you haven't already, now is the time to start a retirement account.

Federal law allows small business owners to put up to 25 percent of their annual income into a retirement account such as a 401(k), SEP or Keogh.

And socking away up to one-quarter of your income will not only lower your tax bill, but it's also fiscally responsible.

Liu advises setting up a retirement account as soon as possible, although, technically, you have until Dec. 31.

Childcare Facilities: For those small business owners juggling work and family, consider adding a childcare facility to your office space, even if you work from home.

You can claim a credit of up to 35 percent of your expenses for childcare. That means if you have a home office and a nanny, you can get a credit of up to 35 percent of your nanny's salary, up to $3,000 per child.

Disabled Access: If you are planning on expanding or renovating your office this year, complying with the standards of the Americans with Disabilities Act could save you lots of dough. For example, you can get a tax credit of up to $5,000 in addition to a tax deduction of up to $15,000 for making your bathroom or entryway handicapped-accessible.

"When you are renovating an office, it pays to meet with standards," Liu said.

Bradford Hall, a tax specialist and president of Hall & Company based in Irvine Calif., says now is the best time to get your accounting in order instead of waiting until the end of the year.

"Then you won't get behind the eight ball," he said.

More Tips
Reducing Your Tax Bill
Startup Tax Deductions
Home-Office Tax Tips
Startup Tax Deductions

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