The holiday season brings closure and hopefulness — another challenging year is all but a memory, and the optimism of a brand new year is soon to ring in.
You’ve assembled the relevant information, and your 2004 income tax form is ready to be prepared in time for the April 15 deadline. While you may be relieved that your tax obligations are over for another year, you may find yourself in a much better tax situation if you do tax planning year-round. It may not be too late to reduce your 2004 taxes or too early to consider 2005 tax planning.
If you own or run a business, here are some tax strategies to consider.
* Assess your business structure with your financial and legal advisers. You could be paying too much in taxes and be more liable if you are in an incorrect type of entity.
* Internal Revenue Code Section 179 offers an immediate $102,000 deduction for depreciable business equipment and software placed in service before Dec. 31. To qualify, the total cost of eligible property placed into service during the year should not exceed $410,000. Heavy sport utility vehicles, pickups and vans used more than 50 percent for business qualify for the deduction; real estate, buildings and structural improvements do not.
* Hire a payroll services firm to prevent liability if sales and payroll taxes go unpaid and to ensure you’re making timely payroll tax filings.
* Establish a succession plan to ensure that your company is not burdened by what it will owe the government should leadership change unexpectedly and drastically.
* If you own your building, conduct a cost segregation study to identify assets buried in building costs. A cost segregation study assigns the shortest possible depreciation life so that the real estate owner can maximize depreciation deductions.
* If you own the business, offer a flexible spending account or cafeteria plan allowing employees to pay for their dependents’ expenses. The company withholds a percentage of employee compensation tax-free to cover these expenditures and pays them by the following December.
Smart investment strategies remain your wisest way to relieve personal tax burdens. Despite the volatility of the market, long-term investments remain your most stable retirement tool. While some stocks may yield deductible losses, others may provide valuable gains. Some things to consider:
* Increase participation in your company’s 401(k) plan by increasing the amount of salary deferred into a retirement savings plan.
* Consider a Simplified Employee Pension (SEP) plan. Unlike most other qualified retirement plans, these can be established after Dec. 31, 2004, and still generate a 2004 tax deduction.
* If you fund your IRA earlier in the year, your benefits will be greater.
* If you are over 50, there may be special catch-up contributions allowed for IRAs and 401(k) plans.
* If you meet the income qualifications, education credits can provide valuable tax breaks.
* When donating clothing and household goods with a value of more than $250, it is mandatory that you obtain a receipt from the agency to validate the contribution.
* If you expect to owe the government, plan your tax payments. Put aside money throughout the year so that you aren’t overextending your other financial commitments.
Tax codes change each year, and your business and personal life are inevitably affected. Don’t wait until the end of the year to assess how.
Learning what tax savings opportunities are out there and planning adequately to take advantage of them could assist you keep more of what you earn.
Adam Berebitsky, CPA, is a director in the tax department of Saltz, Shamis & Goldfarb Inc., the tax and accounting division of SS&G Financial Services Inc. Reach him at [email protected] or (440)248-8787.
