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Tax Strategies for Small Businesses

If you track time using timesheet software that is SOX compliant, and you do so on a per-project basis, you will find that some projects (like software development projects, for example) can be capitalized - i.e. they can be accrued as an asset and depreciated over time. This gives you a very high ability to control how much profit you show in any one quarter.  If you want to lower your profit and taxes one quarter, then expense the project (write all the work off in this quarter). If you want to raise your profit, continue to accrue and depreciate such work.  At any time you can make the decision that a project is 'done' and is now in maintenance mode, thereby expensing all future work on it. 

There are GAAP (Generally Accepted Accounting Principles) rules around this activity that must be followed. But if you have accurate time data on all employees working on the project, then there is some judgment that can be applied as to which projects are expensed and which are capitalized.  This gives you quite a bit of latitude about controlling your apparent profitability for tax purposes. 

Similarly, you can alter the amount of money allocated for such things as project bad debt or ‘slush funds’ for projected project completion investments. These items are also subject to judgment calls that can change over time.

But be careful that you don't end up with giant slush funds that are clearly just designed to minimize taxes.  At some point that becomes evasion - not avoidance.  The former can land you in jail.  The latter is legal.  As always, a tax/legal/accounting expert is very helpful in deciding where to draw the line.

In economic times like these, it is important to minimize taxes so that you can focus your money on growing your business (which creates jobs) rather than growing the government (which destroys jobs).

Read More In: Operations and Legal

Tips & Tricks from Software CEO Curt Finch

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