Year End Tax Saving Tips

The clock is running, but have no fear. There is still timeprerequisite to having deductible business expenses.
to make plans, as the tax filing season nears. HowSuppose you started a sideline business or quit your
clever, yet another poem from the host of the mostprevious job to begin the dream of owning a business.
complete business program on radio, "Better Business".The 2006-year might have generated plenty of
What can be done to reduce income tax exposureexpenses without so much as a dollar of revenue. The
for 2006? Read on if dare, read on if you care.good news is that current efforts will yield a boon for
Outside salesmen should take note. Get reimbursedlater years and current efforts will not be left
for your business expenses, please. The life of theunforgotten in the current year.
salesman is one where meals & entertainment andExpenses incurred for the current year will serve to
use of a personal auto create income tax deductionsoffset income from other sources during the year
that are not terribly beneficial. They are recorded on(W-2 income, interest and dividends, etc.). Providing the
form 2106 and lead to miscellaneous itemizedbusiness is organized as a sole proprietor, partnership,
deductions that are subject to a 2% adjusted grossor S corporation (caution: the S corporation requires
income (AGI) floor. Besides this limitation, it is entirelydirect capital contributions from shareholders in order
possible that our client, the outside salesman, is subjectto create basis for taking losses) the taxpayer stands
to the dreaded alternative minimum tax or AMT.to get a tax benefit. Here's where additional planning
Getting into the AMT causes miscellaneous itemizedcan take form. Suppose the new business owner
deductions to be lost permanently in the winds leavingdetermines that new equipment is needed. Is it better
taxpayers stunned and bewildered. How can ato place it in service during the current year, or wait
defense be mounted against such a noble foe as theuntil next year? To make this assessment, it become
AMT? Get reimbursed I say. Get reimbursed fornecessary to determine what tax rates are currently
whatever your employer will allow. Here's what to do.and what they will be next year. Suppose the
In lieu of getting paid a final sales commission, gather alltaxpayer is in a 35% federal bracket for 2006. The
of your expenses for the year, including auto mileage.business is projected to generate income in the next
Multiply your business auto mileage by 44.5 cents, addyear that will put the taxpayer in the 15% bracket. The
your supplies and travel costs to your ledger, andanswer is to put the equipment in service during the
present this expense report to your employer.current year and taking 179 expense if there is enough
Remember meals & entertainment will be limited toW-2 income from jobs of the taxpayer and spouse.
50% so your employer might not be quick to offerW-2 income will give the taxpayer basis for taking the
reimbursement for this expenditure. Here's how it canimmediate expensing election of up to $108,000 for
work to the benefit of both employer and employee. Ifassets placed in service during 2006. An example of
one is due a commission of $10,000, turn thehow this works would include a husband and wife with
commission into expense reimbursement if you haveW-2's totaling $80,000 start a business in 2006. They
$10,000 of expenses. By doing so, the salesman willhave expenses totaling $10,000 from the business and
receive income that is not reported for tax purposesneed to purchase equipment totaling $40,000. It is
and it will not matter that the 2% AGI floor and AMTdetermined that it is more beneficial to take the
are present as they will be handily defeated with this179-expensing limit in the current year as income will be
strategy. The salesman's expenses will serve to keepminimal in 2007. The expensing limit of code section
the $10,000 commission out of income in the first place179 limits the amount of deduction to income. Since
rendering the efforts of AMT and AGI thresholdsincome from the business is zero, the W-2 income
useless. The employer is also happy. No employer paidcounts as income from a trade or business thus
payroll taxes of any kind will be due on expenseallowing the full deduction of $40,000. This will drive the
reimbursements unlike the payment of commissions.income from the taxpayers down to $30,000 ($80,000
This is truly a situation where everyone can be happy,-$50,000).
how rare is that?Checklist for other items to consider:
Other Things to Consider-Create a retirement plan and determine the best plan
If you started a new business during the year,-Don't forget about auto expenses (mileage rate is 44.
understand this important fact. Income is not a