Deduct New-Business Start-Up Costs

Claim The Manufacturing/Production Deduction

Business taxpayers that are involved in domestic manufacturing, construction, engineering or architectural services related to construction projects, or other eligible production activities shouldn't overlook the "domestic production activities deduction." For 2012, the maximum deduction is 9% of the lesser of: (1) qualified production activities income or (2) taxable income before taking the deduction into account. (Sale proprietors use their adjusted gross income, with certain modifications, instead of their taxable income.) However, the deduction may not exceed 50% of W-2 wages allocable to domestic production gross receipts. If your company is eligible, the deduction could reduce your taxes - and increase your after-tax profits - without any additional outlay of cash.

Deduct New-Business Start-Up Costs

If you 're launching a new business this year, you may incur expenses before the business actually begins operating. Examples include the costs of conducting market surveys, traveling to find customers or suppliers, advertising, and training employees. You may elect to deduct up to $5,000 of these expenses in 2012 as long as the business is up and running by year-end. [The $5,000 limit is reduced dollar for dollar once(image goes here) total start-up costs exceed $50,000.) The remainder of your start-up costs can be deducted ratably over a 1BO-month period.

Contribute To Retirement Plans

As a business owner, you can lower your business taxes - and help accumulate funds for your own retirement - by maximizing contributions to tax-favored retirement plans. Check out the table for the 2012 contribution and deduction limits for various retirement plans. Let us know if you need assistance choosing a suitable plan.

Accelerate/ increase deductions While you're thinking about your deductible expenses, you may also want to consider ways you might accelerate deductible expenses into 2012 to increase your business deductions and lower taxes. Here are a few ideas:

  • You might have equipment or vehicle repairs done or purchase supplies before year·end if these expenses would be incurred in 2013 anyway.
  • If you're an accrual-method taxpayer, you have a little more freedom to accelerate deductions. Look at deducting employee bonuses that you don't plan to pay until early next year (within the first 2Y, months of (2013). But note that you generally can't use this strategy for employees who own a greater-than-SO% interest in the busi ness, and other restrictions may apply.
  401 (k) Profit Sharing Simplified Employee
Pension (SEP)

Employee contributions allowed?
Yes: see page 4 for contributions 2012 deferral limits No No (except for certain plans established before 1997) Yea see page 4 for 2012 deferral limits
Emplorer contributions Required? No - however, cont ribution employer contributions are allowed Yes--contributions can be Discretionary Yes-- Discretionary contributions Yes - must match employee deferrals
up to 3% of payor contribute 2% of
pay for all eligible employees
Maximum annual contributions Smaller of $50,000 or annual 100% of partlclpant's compensation Same as 401(k) Smaller of $50,000 or
25% of participant's
Employee deferral plus required employer contnbution
M aximum
25% of all participants'
deduction compensation plus
employee deferrals
25% of all
Same as profit sharing
Same as maximum contribution
Compensation is gonerally limited to $250,000 in 2012. Calculating the contribution limit for a self-employed individual's profit sharing contribution involves a special computation. SIMPLE IRAs are available only to small employers.

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