by Doug Butler, PhD, CJF, FWCF
To view this article online, click here.
Income tax time is here again!
(Sometimes I wonder if April 15th (tax time) were closer to
Nov 4th (election time) if we would have all 3.4 million words
in the Internal Revenue Service (IRS) tax code! Would you
agree?)
One of the great advantages of owning a small business are
the legal deductions you can take off of your gross income to
arrive at your lowest taxable net income – which means you end
up paying less taxes.
Many people overlook the business tax deductions that
are often referred to as “loopholes.” These loopholes are
designed by Congress to encourage American small business
people such as farriers to stay in business. These business
deductions must be legal and justifiable; however, with the
help of a savvy accountant, chances are you can deduct more
than you think. (You need to find an accountant who
understands the farrier business. But be aware – you may have
to kiss some frogs before you find a prince!)
Here are some common business tax deductions, as suggested
by the authors listed at the end of this article.
- Convention and clinic attendance expenses are 100
percent deductible. These include tuition for the clinic,
motel room (called lodging) and group meals (called off-site
strategic planning meetings). Personal meals and those with
clients are only 50 percent deductible. Always keep a
detailed record of who was present and what was discussed at
these dinner meetings. Records and receipts should be neatly
organized and filed. They should be kept with your old tax
returns for at least 7 years in case of an audit. (In 2006,
there was a 145 percent increase in the number of small
businesses audited by the IRS.)
- Cell phones are totally deductible when used to
take and return business calls. You are less likely to be
challenged if you also have a personal land line or another
cell phone for personal use.
- Computers and printers for record keeping,
billing and client communication and data base maintenance.
You should have another (preferably older) computer that is
used for personal communications and entertainment.
- Machinery or equipment used in the shoe
manufacturing process can be depreciated over 7 years or
Section 179 may allow you to write off 100 percent of the
cost of the machine in one year rather than spreading it out
over several years. This option allows you to write off more
in a good year or to spread the expense over several years
when you have less income. Most machines have a depreciation
schedule specified by the IRS. This is covered in IRS
publication No. 946.
- Mileage options. You can deduct mileage or actual
expenses on business vehicles. Actual expenses include
depreciation (which goes down dramatically after the fourth
year), insurance, repairs, and gasoline or diesel fuel (at
more than $4 per gallon this becomes very important). A
simpler way may be to take a standard deduction for the
number of miles you drive. For 2008 it is 50.5 cents a mile,
for 2007 it was 48.5 cents. If you put on a lot of miles, as
most farriers do, standard mileage will save you money. You
can switch each year to take advantage of the best deal for
your situation.
- Employees who work for you that are classified by
the IRS as disadvantaged give you special deductions.
Consider hiring disadvantaged employees for office or
maintenance work or for apprentices.
- Products manufactured in the United States, such
as horseshoes or farriers tools, give special advantages.
This is called the Domestic Production Activities Deduction
and is part of the American Jobs Creation Act of 2004. A
maximum of 6 percent is allowed on net income. It cannot
exceed 50 percent W-2 wages a company pays in a given year.
While the most important business strategy you need to have
in place is a well-organized, segmented (divided between
business and personal) and incorporated business, these and
other legitimate business tax deductions will help reduce your
tax liability – and help you keep more of what you earn.
For proven business savvy for growing a profitable and
rewarding farrier business, including business plans, control
systems and marketing strategies, order Six-Figure Shoeing today.
References
Kennedy, Diane 2001. Loop-Holes of
the Rich. Warner Business Books, New York.
Martin,
Justin 2008. Stop overpaying the IRS. Fortune Small
Business. Mar:65.
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