Power up your financial picture with these tips

As we face the fast approaching end of 2004, what better time than now for you to review your business and personal financial outlook with an eye toward minimizing taxes?

For a business, consideration should be given to overall strategy and goals, cash and borrowing requirements, succession planning, as well as tax planning opportunities. For individuals, thoughts turn to personal financial planning, estate planning, gift opportunities and income tax planning. The following is a basic list of income tax planning tips:

Businesses

• Review your accounts receivable for uncollectible accounts.
• Consider the timing of needed capital outlay.
• Bonus depreciation is still allowed for qualifying assets purchased and placed in service before January 1, 2005. One half of the asset cost is allowed as a “bonus” deduction in the year of acquisition in addition to normal depreciation on the rest of the cost.
• Section 179 limits have increased to $102,000 for 2004.
• Vehicle type can impact the level of depreciation allowed.
• New building construction or purchases should be reviewed to determine if savings from cost segregation would be worthwhile.
• Retirement plans should be in place before the end of the year to ensure that contributions will be deductible.
• If your business is taxed based upon cash receipts and disbursements, plan the timing of billings and expenditures.
• Dividends of C corporation earnings should be considered before year end.
• Consider year-end bonuses to key employees and officers.
• Review the compensation levels of owner-officers to ensure “reasonable compensation” is being paid.
• Consider adding a cafeteria plan to your benefits package for employees. The savings in social security taxes can cover the costs of the plan administration.

• Retirement plan contributions generally should be maximized. Retirement plan contributions meet two goals as they build assets for your retirement and reduce your current income taxes.
• Give consideration to office in home deductions.
• Consider tax deferred or tax exempt investing as an alternative.
• Long term capital gains realized in 2004 are taxed at 15% federally (a lesser percentage applies if income limitations are met). This beneficial rate also applies to collections on installment sales.
• Consider longer term deferral of gain recognition by utilizing the like-kind exchange provisions of the tax code.
• Consider offsetting short term gains with long term losses.
• Consider gifting appreciated stock, art or property to charities instead of cash. You receive a full charitable deduction for the fair market value of the asset without paying any tax on the difference between your cost and the value.
• Cleaning out those garages and closets and making donations of those unwanted items can also provide you with a nice tax deduction. Keep in mind you need to document what you give and retain the receipt from the organization.
• Alternative minimum tax is impacting more taxpayers. The impact of AMT can be incorporated when triggering events are identified. Some common triggers are the exercise of incentive stock options or timing of state income tax payments.
• Take advantage of remaining tax credits.
• Consider giving away some of your assets to family members while you are alive rather than waiting for death.

Tax planning is not the same for everyone and is not limited to this list. In all cases your specific circumstances and goals combine with your income and deductions to give us the best platform from which to plan. Your financial and tax advisors need open communication from you to clarify your goals and understand your financial picture. In all cases, tax planning must make sense. Short sighted savings may not be best for you in the long-term. We can help you work through that process. Give us a call today, 288-6621.

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Contact Elaine at Elaine_Norton@mnccpa.com.