The month of December is the time for small business owners to put together a year-end tax strategy and developing a tax plan for the tax season. But putting together a tax plan for the this tax season will be difficult due to open tax law issues, especially the status of the Bush tax cuts.

So how should the small business owners approach this year’s tax strategy? Business owners should develop a tax strategy based around on tax rules that will not change or be affected by tax law changes due to new regulations.

Here are a few year-end tax strategy tips for business owners this December:

Update Your Books
As a business owner, it is essential you know your company’s current financial state before any tax planning can be done. Knowing whether your company make or lost money for the year is critical to developing the right tax strategy.

Look Into A Retirement Plan
Profits can be sheltered in qualified retirement plans, and the 2010 rules remain relatively unchanged from 2009. For example, a corporate owner or self-employed person whose salary or net earnings are sufficient can contribute a maximum of $49,000 to a SEP (Simplified Employee Pension) plan, scoring a tax deduction while saving for one’s golden years.
Owners who don’t yet have qualified retirement plans for their companies need to complete the paperwork (provided by their financial institution or mutual fund) by Dec. 31. Then they’ll have until the extended due date of their 2010 return to make their contributions for the year.
It’s wise to discuss the wide range of plan options with a CPA or other financial adviser. Keep in mind, if you do miss the Dec. 31 for setting up a qualified retirement plan, you still have one plan option – the SEP – which can be set and funded as late as the extended due date of the return.
Remember Health Coverage
Owners (other than those with a C corporation) who pay for their health coverage can deduct it, but only as a personal expense rather than as a business expense. However, for 2010, if you are self-employed you can use the premiums to offset the amount of net earnings used to calculate self-employment taxes (which cover mandatory Social Security and Medicare contributions). Because of the tax savings, owners may want to reduce their estimated taxes. The last payment for 2010 is due on Jan. 18, 2011.
Those who use the cash-basis accounting method might also want to pre-pay their 2011 premiums to boost their write-off for 2010 while saving on self-employment taxes.
If the insurance qualifies as a high-deductible health plan, then you’re allowed a tax-deductible contribution to a Health Savings Account, or HSA, for 2010. (To be considered “high deductible” in 2010, the policy’s deductible must be at least $1,200 for individuals and $2,400 for families and meet certain other tests.) While the HSA 2010 contribution can be made as late as April 18, 2011, the sooner it is made, the more earnings you can build up on a tax-advantageous basis. Earnings will never be taxed if withdrawn to pay qualified medical costs.

Donate to charity
Business owners who have had a good year can share their good fortune with charities. The donations are tax-deductible within the limits allowed by law. For example, if you own a C corp, your charitable deductions are limited to 10% of taxable income.
For owners who record business income on personal tax returns (such as sole proprietors, or owners of S corporations or limited liability companies), it’s helpful to note a change for 2010: There’s no phase-out of itemized deductions for high-income taxpayers. That’s a shift from prior years, when contributors lost part of their charitable deductions when income exceeded a threshold amount.

Upgrade equipment
If you need to invest in new business equipment or upgrade old machines, now is a great time to act. Whether the business is profitable or not, there is a tax break to help.

• If the business is profitable, elect first-year expensing for the cost of equipment up to $500,000. (This dollar limit is up from $250,000 in 2009). If the cost is more than the dollar limit, you can also use 50% bonus depreciation and a regular depreciation allowance to effectively write off most of the cost of the purchase. The bonus depreciation option is set to expire on Dec. 31.
• If the business is not profitable, rely on 50% bonus depreciation to write off half the cost (plus a regular depreciation allowance on the other half). This write-off can create or increase a net operating loss, which can result in a carryback that can generate a cash refund.
• While first-year expensing can be used for new or pre-owned equipment, bonus depreciation is limited to new equipment. However, the purchase of equipment for both first-year expensing and bonus depreciation can be financed in whole or in part without any impact on the tax write-off.

One final tip regarding tax strategy is make to update your tax plan when the Bush tax cut and other tax credit issues are resolved in Congress

The 2010 tax season is over, but if your smart, you’re always thinking about next year’s taxes. This year has been bad for most businesses and experts predict this trend will continue. You can’t do much about the economy but you can take control of your taxes. So, here are some tax tips to consider for the 2010 tax year.

Estimated tax payments
As far as tax planning goes, knowing where you’ve been can help you get to where you want to go. This is especially true if you’re self-employed. In other words, seeing how you came out on your last tax return can alert you to changes you need to make to minimize your tax burden next time. For example, if you underpaid your estimated taxes and were assessed a penalty, or if you overpaid your taxes and got a huge refund, you should adjust your estimated tax payments for this year accordingly. Get on the ball now. The second installment of your estimated payments is due this month–June 15. To figure out how much you should be paying, talk to your tax professional.

Tax credits
Tax credits reduce your tax liability. Here are some to take advantage of.

Health-care reform
Small businesses and tax-exempt organizations can get tax relief offered in the new Small Business Health Care Tax Credit. Small businesses that have fewer than 25 full-time-equivalent employees with average wages of less than $50,000, and that pay at least half of individual health-care coverage costs, will be eligible for credits of up to 35 percent of their share of health-care premiums. This credit is retroactive to the beginning of 2010 and is in effect through 2013. Businesses with 10 full-time-equivalent employees making an annual average of less than $25,000 will receive the maximum credit. Those with more staff members with higher salaries will receive progressively less. Exactly how this credit will play out is yet to be seen; look for the “how-to” in claiming this credit.

Green Businesses
Businesses that make changes in their energy systems can get sizable federal tax credits. Installing a solar water heater, for example, could qualify a business for a tax credit of 30 percent of the cost. But a more significant incentive is the Energy Efficient Commercial Buildings Deduction. Although it is a deduction and not a dollar-for-dollar credit, there is still potential for saving big bucks. By modifying things such as lighting, HVAC systems and other parts of a building to improve energy efficiency, companies could qualify for a deduction of up to $1.80 per square foot of commercial building space. So the owner of a 100,000-square-foot building could receive a one-time, $180,000 federal tax deduction.

Work Opportunity Tax Credit
With so many unemployed people out there, if your business is in a position to hire, do it. You can get the Work Opportunity Tax Credit for hiring people who typically have a hard time finding and keeping gainful work, such as low-income ex-felons, disadvantaged youths and veterans, or those who receive food stamps or supplemental Social Security income benefits. The credit equals 40 percent of the first $6,000 of an employee’s wages for the first year of employment, as long as he or she has worked at least 180 days or at least 400 hours. The rate is 25 percent for fewer than 400 hours, but there’s no credit for an employee who works fewer than 120 hours. To qualify for the credit, you have to file a special form with the state workforce agency, which will certify that the worker is eligible for the credit.

Tax season is really never over and it makes business sense to think about tax planning throughout the year.