Expensing election offers tax savings for small businesses

Article Abstract:

Taxpayers can immediately deduct up to $17,500 of the cost of certain business property purchases under Sec. 179. For businesses operating in enterprise zones, the limit is raised to $37,500 under Sec. 1397A(a)(1). Under Sec. 179, deduction can be availed of by sole proprietors, partnerships and corporations. Estates or trusts are not allowed for deduction, however. Deduction can be made for tangible depreciable property purchased during the year. Tangible property includes personal property such as machines, equipment and furniture; single-purpose agricultural or horticultural structures; storage facilities except those that are petroleum-related; and railroad gradings or tunnel bores. The property must be used for business or trade purposes before they can be accepted. Steps on how to plan and claim the deduction are discussed.

Methods, Office equipment and supplies, Office supplies, Tax deductions

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Employment of children in business: income tax savings is only one of the considerations

Article Abstract:

People who own their own businesses can employ their children and realize a deduction for the child's salary, while the child will presumably be taxable at a lower rate than the parent, thus facilitating the financing of the child's college education. To ensure the deductibility of such payroll expenses, the amounts paid to children should be equivalent to amounts that would be paid to strangers for the same service (to keep the transaction at "arm's length"). If the family-owned business is structured as a partnership, the parents should also consider the tax advantages of distributing partnership interests to their offspring. Tax planning and controlling tax liabilities related to family-employing business enterprises are analyzed.

Nepotism, Attribution rules (Taxation)

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Separate corps. ignored in determining reasonable pay

Article Abstract:

A tax court case concerning reasonable compensation from family corporations is discussed. In the case of RTS Investment Corp, the compensation from all three entities owned by a family was combined for income payments to family members. One of the entities owned by the family provided 'management services' to the other family-owned entities, and the IRS argued that the payments were in excess of reasonable compensation and should be treated as distributions from profits. The court disregarded the fact that the family corporations were separate entities because of the overlap in the activities of the corporations and the overlap in the duties of the family members.

Cases, Distribution (Economics), RTS Investment Corp.

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