Tax Saving Tips for Small Business Owners for 2007 Tax Season

Soon 2006 will be gone and the season for tax filing will be here. It is important that before the year ends small business take advantage of tax saving tips to minimize their tax burden and maximize their returns. Here are a few tax-saving tips that small business should take advantage of:

Start or put more money in a fund or retirement savings plan such as individual small business 401K, IRA, SIMPLE, SEP and Keogh. Small businesses can use these financial vehicles to save money tax-free. In addition, small businesses are entitled to tax deduction such as $500 tax break on the new small business 401k. The individual 401k alternative, which was design for self-employed, enables business owners to defer some of their earnings through contribution to a the plan. It is prudent for small businesses to spend money before the end of 2006 on supplies, equipment and other business expenses they intended to purchase in the first half of 2007. A new computer supplies, machinery, employee bonus packages if spend before year-end will help reduce tax expenses. Under the IRS tax code section 179 small businesses, including those filing Section C, are entitled to deduct up to $108,000 of capital purchases in 2006.

A delay in income can also save businesses on taxes. Defer or delay income (postpone charging clients and customers, rescheduling invoicing and shipping) so that income that could be realized in 2006 would be received in 2007. This will ultimately reduce your income for the year and in turn reduce your tax liability.

There is a set of hidden deduction that small businesses need to be mindful. The home office deduction for from part of mortgage interest and real estate taxes could add up to as much as 15% in tax deductions. Additional tax saving can be gain in claiming expenses on the maintenance of a home office. Anyone that is self-employed and works at home should look into the possibility of claiming tax deductions on their home office.

Furthermore, if small business owners who employ their loved ones, particular children can claim a deduction for the compensation you pay them for services provided. Dependent must be less than 18 years old and can have up to $5,200 in compensation in 2006 without paying FICA, unemployment or Medicare taxes.

Health insurance is another area in which small business owners can save on taxes. Health insurance premiums are tax deductible for most small businesses. Health insurance spent on spouses who work in the business can be deductable if a owners set up a Section 105 Health Reimbursement Agreement.

Lastly, look into eligibility for tax deductions on hybrid vehicles, welfare-to-work, work opportunity tax credits. Deductions for charitable donations of certain equipment and computer supplies are still in effect. Please visit www.irs.gov for more information.

Earnest Young is a accounting and tax writer

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