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Tax Reduction Tips
By: Richard Chapo
In the rush to get tax returns prepared and filed by April 15th, many overpay
their taxes. Following are a few tax reduction tips that could help you save a
bundle.
Tax Credit For Starting A Small Business Pension Plan
Establishing a pension plan can help you retain important employees. What many
business owners don’t realize is a tax credit can be claimed if the business has
100 or fewer employees. Meet this requirement and you can take a tax credit of
up to $500 in each of the first three years of the plan. Tax credits are
extremely valuable because they are deducted directly from the taxes you owe,
not gross revenues.
The credit is 50% of certain start up costs you incur in each of the first three
years. The costs include the expenses incurred in establishing and maintaining
the plan. They also include the cost of any educational retirement planning
programs you provide for employees.
For example, first assume that you spent $1,500 starting a pension plan for your
employees in 2004. Next assume that you will spend $1,200 in both 2005 and 2006
for maintaining the program and educating your employees. In this scenario, you
would be eligible to claim a tax credit of $500 in 2004, 2005 and 2006.
Personal Loans To Business
Many business owners lose track of loans they make to their business. As a
result, they incorrectly classify the proceeds of the loan as part of their
gross revenues. This artificially raises the gross revenues of the business and
adds to the tax liability. Closely review your records for 2004 to make sure you
are not making this mistake. Pay particular attention to charges on personal
credit cards. You will be surprised how quickly the numbers add up.
SUV Deduction Wounded, But Still Alive
Much has been made about the “SUV Tax Deduction” that allowed purchasers of SUVs
over 6,000 pounds to immediately deduct up to $100,000 of the cost. Many
mistakenly believe that the American Jobs Creation Act of 2004 eliminated this
deduction. It did not. Instead, it reduced the deduction to $25,000 with the
remaining amount allocated to depreciation. This is still a significant
immediate deduction. If you purchased a non-SUV truck that weighed over 6,000
pounds in 2004, you are not restricted to a “mere” $25,000 deduction.
Tsunami Relief Contributions Paid in 2005
Millions of Americans contributed to charitable organizations providing relief
to Tsunami victims. Typically, charitable contributions are deducted in the year
they are made. New legislation, however, allows you to deduct Tsunami
contributions you made in January 2005 on your 2004 tax returns. Alternatively,
you can wait and deduct the donation on 2005 returns. Unfortunately, you cannot
deduct the contribution on both!
Sales Tax Deduction
If you itemize deductions, you have a choice of deducting your state and local
income taxes OR your state and local sales tax. This option is available for the
2004 and 2005 tax years. If you live in a state that does not collect income
tax, the optional sales tax deduction should be claimed for significant tax
savings. See IRS Publication 600 for more information.
Deduction for Discrimination Lawsuit Costs
If you were required to pay attorney’s fees and court costs associated with a
discrimination lawsuit, you may be able to claim a tax deduction. The deduction
is available only for costs and fees incurred after October 22, 2004 in relation
to a judgment and settlement. The deduction is not limited by the alternative
minimum tax. Realistically, this deduction will be more viable for the 2005 tax
year, but a few taxpayers may be eligible this year.
There are numerous deductions and credits available if you take the time to look
for them. Taxes can be confusing, but the savings justify the time and effort of
finding all available deductions and credits.
About the Author:
Richard Chapo is CEO of
www.businesstaxrecovery.com - Obtaining tax
refunds for small businesses by finding overlooked tax deductions and credits
through a free tax return review. |
