Tax Planning Now is the Key

Author: Keith Huggett

While the fiscal cliff may seem like the end of the world, in some ways it's no different than what we've seen before. With a couple of exceptions, it doesn't change how taxes work. It just makes them cost more. With that in mind, your tax planning should not necessarily be based on doing completely different things but, instead, on doing more of the right things. Here are three must-dos before the end of the year that you can do in conjunction with other sound tax-planning practices:

1. Take as much income this year as you can. If we hit the cliff, you will pay much higher tax rates next year. As such, it is in your best interest to take as much income as you can this year while tax rates are low. On your personal taxes, you should also maximize your deductions. If the discussions about capping deductions come to fruition, you could find yourself losing write-offs that you otherwise could have claimed.
2. Claim your capital gains this year. Before he was elected to his first term, President Barack Obama signaled a desire to see the capital gains rate increase from its current level of 15 percent. Should those taxes increase, selling appreciated business and personal assets could become much more expensive. With this in mind, between now and the end of the year is an excellent time to lock in your gains at this attractive rate.
3. Make capital investments. While it is a good idea to maximize your income, one write-off is too good to pass up: The Section 179 deduction, which allows some small businesses to expense rather than depreciate certain capital expenditures, will be severely cut back in 2013 if we hit the fiscal cliff. If you need capital equipment, buying it this year will let you write off more of the cost.

How You File Can Affect Your Return

Author: Keith Huggett

If you are married, file your taxes under the "Married Filing Jointly" status and either you or your spouse is self-employed, your tax planning can get complicated. Unlike couples who pay income and FICA taxes through withholding, you have to deal with making your own estimated tax payment for both income and self-employment tax on your business income, regardless of what you pay yourself out of your business. 

Self-employed people have two key differences in how they pay their taxes. The first is that they have to pay both the employee and employer portions of Medicare and Social Security contributions as self-employment tax. The second is that, since they do not have anyone to withhold taxes from their income, they have to take the initiative to make quarterly estimated tax payments to the IRS so the government gets its money on time.

There are two key tax-planning rules to remember when you are married and filing jointly, and have a mix of employment and self-employment income:

1. You only pay self-employment tax on self-employment income.

2. The IRS doesn't care how they get your money -- they just care that they get it on time.

The first rule is important because it means that you will not have to pay self-employment tax on everything -- just on the portion of your combined income that comes from your business. The second rule brings up an interesting tax-planning strategy. If you do not want to make estimated tax payments, you can have your spouse adjust his or her withholding upwards so that the equivalent of your quarterly payments gets taken out of his or her paycheck.

Projecting your income and correctly setting up your withholding or your estimated tax payments can be a complicated process. Furthermore, if you estimate incorrectly, you could be liable for IRS penalties. Contact the tax professionals at The Tax Office, Inc. to get help determining the best strategy for you and your spouse.

Look Ahead, Plan Now

Author: Keith Huggett

With all of the changes in the tax code looming, taking full advantage of the relatively low rates and generous deductions that remain for 2012 is crucial. Here are a few tax tips that you should be acting on before the end of the year as a small business owner:

• Get your books organized: To be able to maximize your write-offs, it helps to know where you stand. Organizing your books now and sitting down with a tax expert can help you build a strategy for the rest of the year. It can also ensure that you are doing everything right, which reduces your risk of being audited.
• Make capital expenditures: This year, you can claim a Section 179 deduction and expense up to $139,000 in purchases of capital equipment. On Jan. 1, the deduction goes down to $25,000. In addition, this year's opportunity for a 50 percent bonus depreciation will also expire.
• Pay yourself a dividend: If your small business is a qualifying C or S corporation, you may be eligible for the 15 percent dividend tax through the end of the year. Next year, dividends will be taxed as regular income at rates as high as 39.6 percent if nothing changes. Regardless of what you pay yourself as a salary, this year is a good time to pull income out of your business.
• Shift small business income to this year: While you want to maximize your expenses, after you have done that, take as much income as you can this year. With the highest tax rates set to increase to 39.6 percent next year and self-employment taxes likely to go back up, 2012 will likely be a much better year to be paying taxes than 2013.

Preparation Is The Key

Author: Keith Huggett

While the newspapers are awash with discussion of the fiscal cliff and the looming tax increases that could potentially occur on Jan. 1, 2013, there are even potentially larger issues coming with the estate tax. Barring congressional action, the top rate will return to 55 percent and the maximum exemption will drop down to $1,000,000. Regardless of what happens, good estate planning strategy is key. Here are five tips to help you plan your estate and minimize your taxes:

1. Marry your companion if you have not already done so. Transfers between spouses are usually tax-free. This can also protect your spouse's right to your assets.
2. Write a will. While a will won't necessarily shelter you from taxes, it will help to ensure that your assets go to the correct heirs. Working with an estate planning expert to set up trusts can be an even better way to ensure that your money goes where you want as well as to potentially avoid some taxes.
3. Take full advantage of your tax-free gift provision. Right now, you can give $11,000 per year tax-free. Gifting funds while you are alive takes money out of your estate and reduces the amount that might be subject to estate tax.
4. If you own a business that you will be leaving to your heirs, consider letting them buy stock in the business before you pass away. You may even be able to lend them the money that they use to buy the stock.
5. Plan for the basis set-up. When your assets transfer to your heirs, their basis gets stepped up to the fair market value based on the time that you pass away without your heirs having to pay capital gains taxes. With this in mind, consider holding onto your most highly appreciated assets to leave to your heirs while selling assets that are less appreciated when you need cash for your lifestyle.

Estate planning is extremely complicated, especially with the tax code in flux. The tax experts at The Tax Office, Inc. keep tabs on the evolving tax code and can share the best estate planning strategies with you.

Planning Ahead Can Save Money

Author: Keith Huggett

The end of the year is approaching and now is the time to think about business tax planning. A little strategy and some forward thinking will go a long way toward saving you money and keeping more profit for your business. Work with a professional tax adviser to help maximize your profit by implementing these seven business tax planning tips:

1. Use your accounting method to your advantage. If you use cash-based accounting, use the last month of the year to your advantage by delaying customer invoices and paying off as many pending bills as possible.
2. Buy company equipment. If you have been waiting to upgrade a computer, smartphone or to make a major purchase, do it before the end of the year to increase deductible expenses and take advantage of bonus depreciation.
3. Invest in your retirement plan. All eligible contributions to your retirement plan are deductible, so give as much as you can before the end of the year to reduce your income tax liability.
4. Bump up your payroll and contractor expenses. Hire your children to help around the business and add them to the payroll. You can deduct the wages and even give them a holiday bonus to further reduce your tax liability.
5. Buy a new company car. Take advantage of federal tax credits for purchasing an SUV or electric vehicle.
6. Take a working vacation. Planning to travel for the holidays? Schedule some work meetings and write off a portion or all of your trip. Work with your tax adviser before you go to make sure you understand what you can and cannot write off.
7. Start a 401(k). Even if you already have an IRA, setting up a 401(k) will allow you to save (and deduct) even more. Start the plan by the end of the year and make a contribution before mid-April.

Making Rentals Less Complex

Author: Keith Huggett

As the 2013 "fiscal cliff" approaches, many small businesses are taking a closer look at their tax strategies. For those in the real estate and rental businesses, income tax returns have always been a bit complex. This year, more than ever, it is essential that you follow sound tax strategies for landlords in order to take advantage of expiring credits and deductions without getting caught in an audit.

Here are few basic tax strategies for landlords that may make end-of-the-year forms and reports easier:

• Understand deductions: There are numerous deductions currently available for individuals and businesses with rental properties. You can deduct interest paid on property loans, similar to the deduction received by single-family home owners. You can also claim a deduction related to the depreciation of property. In addition to property-based deductions, landlords can also claim expenses. Insurance premiums associated with your property and travel expenses that are incurred maintaining properties can be deducted. There are limitations on these deductions, so be sure you understand the tax code or seek professional assistance in preparing returns.
• Avoid common mistakes: Small, family-owned companies often make common mistakes in business management, such as mixing personal and business accounts. Keeping finances and expenses separate not only decreases the work come tax time, it also reduces the chance of a mistake or an audit.
• Create easy access to data: Cloud computing now offers easy tax strategies for landlords. Technology that was previously available only to large businesses can now be accessed by individuals and small companies. With cloud computing, you can share financial data with professional accountants or access all your records from any location and at any time. Instant access to and organization of records reduces the time your income tax forms take and decreases the likelihood of a mistake.

Making It Personal

Author: Keith Huggett

When you run a sole proprietorship, your business' taxes are your personal taxes. With this in mind, end-of-the-year tax planning is especially important. Here are some tips that can help you minimize your tax bill:

• Compile documentation on your home office and vehicle usage. The IRS lets you write off home office and vehicle expenses, but you will need to clearly identify which portion of each gets used for business purposes and which for personal purposes.
• Set money aside for taxes. While you should have been paying estimated tax payments, you should still be ready in case you owe more money. Keep in mind that your income will also be subject to self-employment tax, which can easily add up to thousands of dollars.
• Accelerate earning money. Right now, 2012 has lower tax rates than 2013, although this could change if Congress extends the Bush tax cuts. With this in mind, 2012 could be a good year to earn income. If it makes sense for you, you might want to shift income to this year and expenses to next year.
• Get your books in order. The accountant or tax preparer who will compile the returns for you and your sole proprietorship will need detailed information on your income and expenses so that he or she can accurately reflect your business' operations. 
• Make capital expenditures. The Section 179 deduction is a generous $139,000 this year and lets you choose to expense instead of depreciate major capital purchases. Since it will go down significantly in the 2013 tax year unless the tax code is changed, this year is an excellent time to buy large items for your business to offset profits. If you combine the Section 179 strategy with shifting income to 2012, you could end up creating tax-free profits.

Taking Control of Your Tax Destiny

Author: Keith Huggett

If you are self-employed, you control your destiny. You also have a great deal of control over how and when you earn taxable income, which gives you a lot of control over how much you pay in taxes. At the same time, you also have to take responsibility for paying your income and self-employment taxes, which can add up fairly quickly. Here are seven tax-planning tips that you should keep in mind:

1. Put some money aside for taxes: The IRS usually expects you to make quarterly payments, so make sure that you have enough for income taxes, self-employment taxes and sales tax payments.
2. Include family members in your tax planning: You may be able to reduce your tax burden by shifting income to family members who are in lower tax brackets.
3. Track your mileage: The miles that you drive for business purposes are generally tax deductible. With IRS mileage rates at or more than 50 cents per mile, they can add up quickly. You can also talk to an accountant to see if claiming actual auto expenses is a better deal for you.
4. Write off your health insurance: Your health insurance costs are fully tax deductible when you're self-employed, so ensure that you don't miss this opportunity.
5. Shift your income: If you've had an unusually good year, you can delay sending invoices until next year, or pay bills this year for next year to reduce your income. That way you'll shift profits into a year when you may not be subject to a high tax bracket.
6. Spend wisely: Many of the things that you do can be tax deductible. A tax-planning expert can help you determine what you can write off.
7. Plan for retirement: Planning for retirement doesn't only make good lifestyle sense, it is also an excellent tax-planning strategy. Self-employed people have access to additional tax-advantaged savings options like Keogh and SEP plans.

Five Smart Steps You Can Start Taking Now

Author: Keith Huggett

Your business tax liability depends on your net profit, which means that the more expenses you can deduct, the lower your tax liability will be. If you want to avoid a big tax bill at the end of the year, there are some decisions you can make now that will help decrease your tax liability.

You can adopt some or all of these tax strategies to save more money:

• Set up a retirement plan: In addition to providing an additional benefit to your employees, contributing to a small-business retirement plan allows you to defer paying tax on those contributions until the money is withdrawn in the future. This will both lower your tax bill in the year you made the contribution and help you prepare financially for the future.

• Use smart accounting techniques: If you reimburse employees for expenses or mileage, make sure this amount is not included in payroll taxes. This will save both you and your employees on taxes throughout the year.

• Pay attention to year-end cash flow: Deferring invoices until later in December will allow you to collect payment in January. If you combine this with accelerated bill payment, you can reduce your total income for the year.

• Select the right business structure: Depending on the size of your business and the amount of income you generate, it might make sense to convert to a C corporation rather then a pass-through entity such as an LLC or an S corporation. The type of business entity you have defines the way you are taxed, so take a close look at the options. 

• Boost benefits, not raises: If you want to increase employee compensation, consider making a larger contribution to their benefits instead. They will still take home more money, but you will pay lower payroll taxes.

The Tax Office Inc. provides tax-planning services so you can maximize your business profits. We can help you set up a charitable trust, create smart retirement plans and develop other strategies for reducing your tax liability. Call us today or contact us here to learn more.

Having a Plan Ready Can Help as Codes Change

Author: Keith Huggett

Unless Congress passes a new law and gets it signed, the tax code will change significantly on Jan. 1, 2013. Given that this is an election year, odds are that little or nothing will get done before taxes go up. Furthermore, depending on how the elections go, the tax cuts could very well not get renewed. With this in mind, here are a few pieces of tax strategy that you can implement today to take advantage of this year's favorable rates and keep your tax bill down:

• Take advantage of the $5 million gift credit. This year, the first $5 million of your estate are tax free. However, you can also opt to not die and gift up to $5 million without incurring any estate or gift tax. Take advantage of this by gifting money to your heirs this year while it is tax free, instead of waiting to pass it on through a will when you pass away.

• Pay your capital gains taxes. If you have appreciated stock that you are looking to turn into cash, selling it before the end of the year will lock in this year's low capital gains taxes. On the other hand, it is always a good idea to donate highly appreciated stock since you can write off its current market value without ever having to pay the capital gains tax on any profit that you made.

• Convert traditional IRAs to Roth IRAs. This tax strategy lets you take advantage of this year's low taxes, to take your IRA funds and put them into a Roth account where any future growth will be completely tax-free. In the long run, this can save you a great deal of money.

Implementing a tax strategy takes professional help. The experienced professionals at The Tax Office Inc. can help you find a strategy that works for your personal taxes and for your business' account. Contact us today to learn more.