What can you do now to reduce your 2007 tax bill?  Contribute to IRA retirement plans until April 15, 2008 and make sure you spend all your FSA contributions by March 15, 2008. The article also gives several money-saving ideas for reducing 2008’s tax bill. This article was originally published in the November/December issue of The Business Owner, a free magazine to all corporate members.  If you are interested in receiving The Business Owner contact mpiper@sgia.org.

 　　The most effective way to shelter income from taxes is by funding retirement accounts, and business owners now have better retirement plan options than ever before.  The key is to get started.  To reduce 2008 taxes, set up your new plan before year-end.  Here are some popular options:

 　　SEP: The Simplified Employee Pension (SEP) plan will allow you to contribute and deduct up to $45,000 this year.

 　　Solo 401(k); May allow you to contribute and deduct up to $45,000 this year.

 　　Defined Benefit Pension Plan: This plan gives you the potential to contribute and deduct more than any other, up to $180,000 in 2007.  The exact amount depends on factors such as your age and income.

 　　Note that although these plans offer powerful tax-reducing and wealth-building benefits, they do contain rules and complexities.  For example, some require that you open the plan to employees.  Talk to your financial advisor.

 　　Delay Revenue and Maximize Expense

 　　By doing either one, you’ll reduce current-year book profit and thereby lower your 2008 tax bill.  Here’s how:

　　Delay shipments until January 1.  You’ll reduce current-year profit (assuming the jobs are profitable).
Delay invoicing.   Many companies simply recognize revenue when the invoice is cut.  Delay invoicing and reduce current-year profit.

　　Record all payables before the new year.  Don’t allow payables to sit in the inbox unrecorded.
Arrange for vendors to deliver any invoices “in their system” before year-end, especially larger invoices.
Accrue (record) all unrecognized obligations such as earned-but-unpaid wages and bonuses.
 

　　Purchase Equipment and Software

 　　Most small business are eligible for the “Section 179” deduction.  For tax years beginning in 2007, you can immediately deduct up to $125,000 worth of business equipment – as long as it’s up and running by year-end.  That equipment can be new or used.  Software costs qualify.  Business-use vehicles also may qualify, but there are special rules for vehicles.  See below for treatment of “heavy” vehicles deemed to be SUVs.  Heavy vehicles NOT deemed to be SUVs are treated like other types of equipment for Section 179 purposes (and that’s a good thing).

 　　Buy a Qualifying “Heavy Vehicle” SUV

 　　To the extent that you don’t use all of your $125K Section 179 allowance on equipment and software, consider buying a new SUV before year-end to take up the slack.  Be sure it’s rated 6,000 pounds or more.  The Section 179 amount you can take from the purchase of an SUV to $25,000, but you can take that PLUS regular first-year depreciation on the cost left after the first deduction.  Also, be aware that you can claim depreciation deductions only for the business-use percentage of an asset’s cost.  For example, if you use a vehicle 80% for business and 20% for personal purposes, you can depreciate only 80% of the cost.

 　　The Section 179 deduction cannot exceed your business taxable income (calculated before the Section 179 write-off).  For 2007, the deduction is phased out if your business acquires more than $500,000 worth of assets that would otherwise qualify for the Section 179 write-off.

 　　When a heavy SUV, pickup or van is owned by your corporation, it must be used more than 50% for actual corporate business activities (based on mileage) to qualify for the Section 179 write-off.  When the over-50% business-use test is failed, your corporation must depreciate the vehicle using the straight-line method (in which case it will take six years to write off the cost completely).

 　　Offset Investment Gains and Losses

 　　Investment losses are not tax-deductible but can be used to offset taxable gains.  If you sell investments in 2008 at a loss and have other investments –such as stocks– with paper gains, consider selling and taking a gain equal to the loss.  The gain thus will be shielded from taxes.  The reverse also holds true.  If you realize gains during 2008 consider selling some losers to offset the gain.  Be alert to short- and long-term issues.  Short-term gains are taxed at ordinary income rates.  You’ll need short-term losses to offset short-term gains, but short-term losses can also be applied to long-term gains.

 　　Spend Unused FSA/HSA Dollars

 　　If there is any money left in your flexible spending account, spend it by year-end or lose it.  So go get that checkup, procedure, prescription refill, new set of eyeglasses, etc.

 　　Manage the AMT

　　If your income is above $75,000 and you have significant write-offs for personal exemptions and took (or are considering taking) some sizeable capital gains, talk to your financial advisor.  You could be facing a big Alternative Minimum Tax (AMT) hit.

 

[时间：2008-01-11  作者：Business Owner  来源：信息中心]