The summer is typically a time for individual taxpayers and small-business owners to take a deep breath while catching up on some recreational pursuits or other pleasurable activities. But there is precious little time to relax in the tax world. With that in mind, here are 10 mid-year tax strategies that may prove to be beneficial.
Business trips: When you travel away from home on business, you may deduct your travel expenses—including airfare, lodging and 50% of the cost of meals—if the primary purpose of the trip is business related. But the number of days spent on business vs pleasure is crucial, so be careful as to how you allocate your time. Note: If your spouse accompanies you on the trip, his or her expenses are generally not deductible, but you can still deduct what it would have cost you to travel alone if that is more than half the cost.
Business property: Under Section 179 of the tax code, you can elect to currently deduct the cost of qualified business property purchased and placed in service during the year. The maximum deduction allowed for 2012 was $500,000 (subject to a phaseout for acquisitions above $2 million). Under ATRA, these limits are extended through 2013. Absent new legislation by Congress, the maximum allowance will plummet to $25,000 in 2014. Note: ATRA also preserves 50% bonus depreciation on any remaining cost of qualified property your business places in service this year. The bonus depreciation tax break is generally scheduled to expire after 2013.
Worker credits: The Work Opportunity Tax Credit (WOTC) for hiring certain economically disadvantaged workers, which technically expired after 2011, was revived by ATRA retroactive to the 2012 tax year and extended through 2013. Normally, the WOTC is equal to 40% of the first $6,000 of wages, for a maximum $2,400 credit per qualified worker. However, if your firm hires qualified individuals age 16 or 17 for the summer, the credit is generally equal to 25% of the first $3,000 of wages, for a maximum credit of $750 per qualified worker. Note: The summer credit for youths applies only to services performed between May 1 and September 15.
Business entertainment: Although country club dues are not deductible, a small-business owner who entertains clients on the golf course or on the tennis court may still claim top-dollar write-offs. For instance, if you treat a client to a round of golf before or after a “substantial business discussion,” you can deduct 50% of the fees, club rentals, and your meals and drinks afterward. Note: If the client is from out of town, the business discussion can take place the day before or after the golf outing.
Company picnic: Usually, deductions for business entertainment and meals are limited to 50% of the cost (see above). However, if you hold a summer picnic or barbecue for the entire workplace, your business can write off 100% of the cost. Note: It will not jeopardize the deduction if you also invite a handful of business associates and social guests.
These are just 10 potential tax-saving opportunities available to taxpayers midway through the year. Obtain more information pertaining to your situation.
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