Your chances of getting audited by the feds are at a record low: about 1%. Audits of corporations dropped by almost 13% last year.2001 TIP
Assets of S Corps and LLCs bought before this year can qualify for an 18% capital-gains tax rate in five years if you "sell and repurchase" them by next April. It's just a paper-shuffling transaction, and quite legal. Be prepared, though, to pay capital gains on appreciation rung up before 2001.DO...find out what state income tax credits you're entitled to. Some state credits have names similar to federal credits but lower requirement thresholds, so they're easier to qualify for. DO hire a payroll service to handle your withholding taxes. There's a 100% penalty for failure to pay them. DO discuss the tax consequences of any major business decision, such as the purchase of new equipment or rental of new property, with your accountant.DON'T...claim a tiny salary from your profitable S corporation to minimize Social Security and Medicare taxes. It's a red flag to the IRS. DON'T lose track of year-to-year carryover deductions for state and local taxes and capital losses. DON'T file a self-prepared, handwritten return.ADVICE
-- Set up a defined benefit plan for you and your employees. You can put away enough to fund a $130,000 annual retirement income and get a tax deduction to boot. The older you are, the bigger the contributions that are allowed. The oldest and highest-paid employees get the lion's share.
-- Hire your spouse and provide medical coverage for employeees and dependents. Voila--100% deductible health insurance. Two caveats: Your spouse must be a bona fide employee and not a co-owner, and the policy must be owned by the business.WARNING
The IRS is now actively targeting small-business owners who fail to withhold payroll taxes for their employees77%: That's the percentage of entrepreneurs who say federal and state gift and estate taxes had no impact on their companies. Only 2% were forced to sell assets to pay the taxes, says Arthur Andersen. The rest hired a lawyer or accountant and set up trusts to duck the impact. By Lynn Brenner