The Midyear Business File

A midyear review of your business tax planning can pay off, too. Here are some places to start.

Plan your purchases

For 2011, you can take advantage of bonus depreciation rules to expense up to 100% of the cost of new assets.

Another depreciation option, Section 179, also known as immediate expensing, has been expanded. Now you can write off the cost of up to $500,000 of eligible assets, including qualifying software and leasehold improvements. You can use Section 179 for used assets as well as new ones.

Hire your kids

When you're self-employed, wages paid for work done by your under-age-18 child are not subject to social security and Medicare tax. But if your business is a corporation, you'll have to withhold these payroll taxes on your child's wages just like any other employee.

Either way, you can claim your child as a dependent on your personal return, assuming you meet other rules. In addition, the first $5,800 of wages (the 2011 standard deduction) can be free of federal income tax to your child.

Here's an added tax saver: Use the wages (or other money you contribute) to establish an IRA for your child. The maximum contribution for 2011 is $5,000 or 100% of your child's earned income, whichever is less.

Travel wisely

Journey by plane, train, bus, or car to a convention, conference, or seminar for a valid business purpose, and your expenses can be fully deductible. Take along your family and add personal vacation days to your trip, and some of your costs may be nondeductible. Before you finalize your itinerary, get details on rules and recordkeeping requirements so you can claim the maximum tax advantage from your summer travels.

Don't overlook recent tax laws and rulings

Be aware of recent law changes and IRS rulings that could be important to your business.

First, there is the repeal of the expanded 1099 reporting requirements. As a result of this repeal, your business will no longer need to gear up to report payments you make in the course of your business for purchases of goods for $600 or more from a single provider. Also, you will generally not be required to file 1099s for payments to corporations.

Second, if you own rental property that is not considered a trade or business, you won't have to issue 1099s when you pay a single provider $600 or more in a year for rental expenses.

Some reporting requirements for Form 1099s remain the same. For example, you'll still have to file Form 1099-MISC when you pay for nonemployee services of $600 or more during a calendar year.

The IRS is giving small firms some reporting relief in another area, too. The health reform legislation passed in 2010 included a requirement that employers report on W-2 forms the value of health coverage they provide to employees. The IRS had already provided relief for all businesses by making reporting optional for 2011 W-2s. Now, small companies that file fewer than 250 W-2s need not report the value of benefits until 2012 W-2 forms are filed in early 2013.