End of the Year Tax Tips

Posted by on October 12, 2009 · Leave a Comment 

By: Barrett Haus

It’s hard to believe, but it’s time for our annual tax tips article. This year, there are some changes or anticipated changes to the federal tax law are extremely important for every business owner to keep in mind. And the perennial favorites are back, but no less important.

New tax tips for 2007

1.) The alternative minimum tax (AMT) is going to affect many more households this tax year unless Congress makes a last minute tax law change. So have your financial advisor do a comprehensive review to try and minimize this dreaded tax before 2008.

2.) The Domestic Production Activities Deduction has increased this year to 6%. So if you own a business that qualifies for this deduction make sure your tax advisor is accounting for the deduction.

3.) If you file a Schedule A and your household income is not too high (i.e. under $100,000 per year adjusted gross income for married filing jointly) mortgage insurance is now deductible. Consult with your tax advisor to see if you qualify.

4.) This IRS is cracking down on charitable contributions. Everything including cash donations must have a paper trail.

5.) Taking into account the turmoil in the local housing market, you should make sure you are taking advantage of the most appropriate classification for any vacant investment property you own. Hopefully, that will ease the sting of this slump at least a little bit.

Reminder tax tips for every year

1.) Keep accurate and separate financial records – Always have separate business bank accounts and credit cards. By isolating the business’s revenue and expenses, it will make it easier and therefore less costly to have an accurate tax return prepared and maximize deductions.

2.) Ensure correct business and tax structure – It is imperative your business is structured correctly and therefore taxed most efficiently. Whether it be an S-corporation, Partnership, or whatever, it pays to know which is best for a particular type of business and owner arrangement. Adjusting your structure often has to be done during a short time frame at the beginning of the year, so ask your financial advisor if you should reassess your classification.

3.) Shareholder/Owner Compensation – If you’re taxed as an S-Corporation, you need to perform an annual analysis to ensure a reasonable amount of shareholder compensation (wages) has been taken.

4.) Vehicle Expenses – Another number crunching exercise! Determine the best method to account for owner transportation expenses when supporting the business. Some items to take into account are buy-versus-lease analysis or taking mileage in lieu of a company vehicle. Rule of thumb – if the owner drives lots of miles in support of the business, take the mileage, unless you drive a Hummer!

5.) Take advantage of specialized retirement plans for small business – There are multiple plans available for business owners which can defer income for retirement and provide savings on your tax bill now. To ensure your business has the most suitable plan consult a professional.

6.) Expensing Equipment – If your business is profitable, then fully expense most types of equipment in the year purchased and save on this year’s tax bill (section 179).

7.) Active Vs. Passive – Make sure active versus passive income is being accurately recorded and tax savings maximized. This is most applicable to real estate investors, investment partners, and the like.

8.) Document your help. W-2’s for employees, 1099’s for over $600 subcontractors. Many pitfalls exist for not accurately recording business help.

Filed under Finance & Accounting