Essentially, I am looking for significant yet sensible approaches/areas for business tax deductions.?

Question

Tax deductions generally come when earnings are reinvested, back into the businesses. Based on projections, the year should end in a 225K to 275K net profit (this incorporates costs + a maximum IRA). W/ tax-code section-179 in play, a business can deduct ~100K w/in a single tax/yr rather than via the typically longer, multi-year depreciation process. New equipment purchases should absorb ~ 100K; this in turn will allow the business to act on the benefits of section-179. Efficiently utilizing the remaining ~200K is the challenge. Developing & exercising viable & legitimate investment/deduction opportunities is in a sense the goal. Most ideally, I had hoped that the additional funds could serve as a business investment in the form of a business property down-payment (i.e., for a new corporate office). A balloon down payment, to my understanding, however, can not be, as in section-179, taken as a deduction entirely w/in the same year. I am requesting feedback on the topic, and I hope that those with stronger backgrounds/experience will shed light on my self and the group. Clever (above-board) strategies that promote tax deductions are certainly welcome.

Answer 1

Assuming your are 100% owner, you should not be limiting yourself to an IRA if you have annual profits of greater than $200k. Talk to your accountant immediately to find out your options regarding implementing a 401k plan with profit sharing or maybe even a defined benefit plan if you employ yourself and maybe just a few others. Under a good plan, you should be able to put away at least mulitple times the $5,000 IRA limit.

How much were your new asset additions? I would suggest calculating your tax depreciation (even with sec. 179, you get MACRS on the remaining depreciable basis) as this could be another large hit.

A purchase of a new building would give you additional depreciation, but not any write-off expense.

The most practical business advice would be if you have $200k in profit and are looking to spend, you must have the $200k in cash lying around. Rather than looking for ways to spend it to save a few dollars in taxes, look for ways in your business to reduce future costs. Often times I see company's blowing money to save tax when they could use the cash to pay down debt and save money on interest. If you don't have debt, but have the extra cash, you are probably in cash cow status now which is why the retirement options are your best bet to defer tax.

Additional note- with regards to closely held flow through entities (which I'm assuming this is), retirement contributions have a lot to do with business profits as while putting money aside money for shareholders, and eligible employees, you are reducing your tax liability. I assume based upon your comments this is what you meant when you mentioned maxing out IRA.

Answer 2

"Tax deductions generally come when earnings are reinvested, back into the businesses." Based upon this statement alone, you have little concept of how business operates. Hire a CPA.

"(this incorporates costs + a maximum IRA)" This only solidifies my point. An IRA has nothing to do with business profits. Hire a CPA.

Answer 3

I agree with the previous answer totally. Hire a CPA