Good records are a must at tax time

Dear Karen: Can you give some small-business tax tips for 2008?

Answer: In any year, it’s imperative for entrepreneurs to keep good financial records. Many of them make cash outlays and don’t keep expense receipts, meaning they miss out on deductions, said Richard Snelson, a certified public accountant and executive director of Ernst & Young’s Los Angeles office.

“For example, if you’re using your cellphone for business, you can deduct your business calls and a portion of your monthly service charge. But you have to keep a log of calls in case you’re audited,” Snelson said.

Talk to your tax preparer about setting up a retirement plan for yourself and possibly your employees this year. And make sure you take full advantage of the Section 179 deduction, which allows a small-business owner to deduct the full cost of business equipment in the year it’s purchased rather than depreciating it over time. Finally, check to be sure you’re taking your full self-employment tax deduction and deducting the full cost of any insurance premiums you pay as a self-employed individual.

Who owns right to workers’ ideas?

Dear Karen: My employees sometimes come up with product innovations on the job. Do I own the legal rights to their ideas and prototypes or do they?

Answer: Let’s first assume that you have no specific intellectual property employment agreement with these employees. If the innovations they create while at work relate to your business, particularly if they’ve been hired to innovate or invent, the law typically assigns you the rights, said Chris Renk, an intellectual property lawyer and partner at Banner & Witcoff in Chicago.

However, the law here is complicated and in some cases the courts have ruled that employers are entitled only to “shop rights,” rather than full legal ownership. If a shop right is assigned by a judge, you’d get a nonexclusive, royalty-free right to use the invention while your employee retains legal ownership.

Rather than risk that outcome, have your employees sign an agreement that says anything they invent relating to your business has to be assigned to your company.

In California and four other states, intellectual property employment agreements must carve out exceptions for unrelated inventions produced outside of the workplace, without the use of the employer’s resources, Renk said. “In California, when you’re getting an employee to sign this agreement, you must notify them of the provision for unrelated inventions.”

‘Green’ appliances can grow business

Dear Karen: Can the growing interest among U.S. consumers for “green” and energy-efficient home appliances lead to opportunities for entrepreneurs?

Answer: The exposure and subsequent interest in buying efficient home appliances has grown significantly in recent years, prompted by tax credits and substantially increased energy costs.

Scott Davies, product manager at Fisher & Paykel Appliances in Huntington Beach, said the increased demand is a boon for innovation.

He stressed that companies must be sure to deliver green innovations without compromising their products’ performance or reputation.

And there’s no point in touting a firm’s green credentials without committing to an environmentally friendly manufacturing and recycling process, he said.

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Got a question about running or starting a small enterprise? E-mail it to ke.klein@ latimes.com or mail it to In Box, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012