Do you have an informal business that you are already running in addition to your regular job? Many people do. In fact in a down economy, it is not at all uncommon to meet entrepreneurs who work for other people and still run their own businesses on the side. What many people don’t know is that your business on the side can probably be even more profitable than it already is. While you may think that because it’s not your primary job, your business on the side should be kept informal and uncomplicated with strict record keeping, the truth is that there is a lot of money to be saved by treating your small business like it is your primary income. Here are some incentives for stepping up the bookkeeping in your side business, allowing you to take advantage of many new tax breaks and small business accounting changes just implemented last year.
Deduction for Qualified Trade or Business Start-Up Expenses. Last year, the amount of money an entrepreneur could deduct for qualified trade or business start-up expenses was doubled from $5,000 to $10,000. Previously, taxpayers were allowed to deduct up to $5,000 in qualified trade or business start-up expenses but were required to reduce the amount from $5,000 for any part of the expenses that went over $50,000. This new deduction raised the maximum amount to $10,000 and mandated that the amount deducted from $10,000 is any part of the expenses over $60,000. But what are qualified trade or business start-up expenses? They have been defined as those expenses used while looking into starting a business or actually doing so that could have been deducted if the taxpayer were operating a business that was already in existence.
Deduction for Entrepreneurial Health Insurance Expenses. If your regular job doesn’t provide health insurance, you may be getting it through your business on the side. If that’s the case, this deduction is for you. Now, a self-employed individual can deduct the cost of health insurance for themselves and their immediate families when calculating self-employment income on the tax return thus saving you money on the health insurance you require.
Ability to Sell off Assets Faster. The new rule is that C-corporations that convert into S-corporations are allowed to sell appreciated assets after holding them for only a minimum of five years. Previously, a newly converted S-corporation had to hold appreciated assets for a minimum of 10 years before it was allowed to sell them away. Now, the corporation need only hold the assets for five years, saving the corporation money by not requiring that appreciated assets or those assets that would require payment of taxes at the highest rate be held longer than five years after the conversion. This change only applies to C-corporations converting to S-corporations, but incorporating is always a good idea and S-corporations are the most tax friendly of the corporations so it may be more applicable to your business than you think.
There are thousands of businesses in the United States alone. Many of which started out as small businesses and even some that started as small businesses on the side. The important thing to remember is that even a small “extra” business should be carefully watched and purchases recorded so you can benefit from these new tax deductions and changes in accounting. Also, remember it’s a good idea to register any company with the state for even more tax breaks and protection against personal liability!
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