It has been estimated the average company can save approximately $75 per employee per year going paperless. This sounds like a great idea and one you might want to consider.

One potential tax break for both is to have the owner buy property and assets personally and then lease them to the company. By doing this, the owner is paid deductible lease payments instead of nondeductible dividends. The business owner’s income is offset with depreciation or amortization deductions.

The company benefits by gaining cash it may need for expansion. In addition, the business can deduct rental payments. Money paid to the owner in dividends is not deductible for the business.

There are five basic requirements for such a deal to satisfy the IRS that the transaction is legal.

Source: Small Business Strategies, March 2010

Mileage: If you drive your personal car or truck for business and opt to deduct costs based on the IRS standard mileage rate (rather than your actual costs), note that the rate for 2010 is much lower than it had been for 2009. The 2010 rate is 50 cents per mile, down from 55 cents per mile in 2009.

New vehicle purchase: If you purchase a new vehicle in 2010, the IRS has yet to announce depreciation limits (these probably will not be available until February). Based on projections that do not foresee an extension of bonus depreciation rules, expect the dollar limit for a car to be $3,060 and for a truck or van to be $3,160 (up slightly from 2009 levels).

Retirement plans

If you already have a 401(k) or other qualified retirement plan, be sure to note that contribution limits remain the same for 2010 as they were in 2009. Thus, the top contribution to a SEP for 2010 is $49,000.

There is a new retirement plan option available in 2010, and businesses with existing plans and those with no plans might consider this new option, called a DBk. It combines a modest defined benefit (pension) plan with a 401(k)-like option. As the year progresses, look for financial institutions to start offering DBk products.

Health plans

Health savings accounts (HSAs), allowing small business owners to provide affordable health coverage, have new contribution limits for 2010. The annual contribution limit for self-only coverage is $3,050; it’s $6,150 for family coverage. The contribution can be increased by $1,000 for each person age 55 or older by the end of the year. To be eligible to make an HSA contribution, a person must be covered by a high-deductible health plan. In 2010, this is a policy that has an annual deductible of at least $1,200 for self-only coverage and $2,400 for family coverage. If you provide an HSA for your staff and make the contributions, they are deductible and are not subject to FICA and FUTA taxes.

Expired provisions

A number of important business-related tax rules expired at the end of 2009. The House has passed a bill that would extend some of them for one year; the Senate will probably pass a similar measure early in 2010 and make the changes retroactive to January 1, 2010. Key extenders include:

• Research credit
• 15-year amortization of qualified leasehold, restaurant, and retail improvements
• Expensing of environmental remediation costs
• Employer credit for wage differential payments to employees called to active duty
• Enhanced deductions for charitable donations of food inventory, book inventory, and computer technology

For more information or to get answers on any questions you have, please contact CGP at (916) 685-1040.