If you haven’t started your tax planning for 2006, you’re already behind. Waiting until Dec. 31 – or worse – until April 15, 2007, could cost you a bundle.
Of course, you’ll want to consult with your tax professional. But, there are actions you can take now to reduce the taxes you pay to Uncle Sam next year.
Maximize Business Deductions
The more business deductions you have, the less you’ll pay in taxes. So, find ways to write off every possible legitimate expense. Try these three ideas:
Section 179 of the tax code lets you take a deduction for the cost of equipment in the same year that you purchase the equipment. You get an immediate write off, instead of having to spread the deduction over several years through depreciation. In 2006, you can expense up to $108,000 for certain equipment.
Tip: If you’re planning to purchase new equipment, such as a computer, early next year, make the purchase before Dec. 31, 2006, and get the deduction this year.
Got a retirement plan? Put more money into it. Most contributions are tax deductible (except in the case of a Roth IRA).
If you don’t have a retirement plan set up, start one now. You have plenty of options: SEP-IRA, Keogh, Solo 401(k) and more. You can learn about these plans and others with the free, online AFS article Retirement Plan Primer.
AFS Members can also turn to OppenheimerFunds, which offers a Single K Plan for self-employed individuals and qualifying small businesses. This 401(k)-type plan allows you to make a $15,000 salary deferral plus a tax-deductible profit sharing contribution of 25 percent of compensation ($44,000 maximum deductible deferral for 2006). Go to OppenheimerFunds to learn more about this AFS benefit.
Look at any tax-deductible expenses you anticipate early in 2007. Can you move some of those into late 2006 so you get the write off this year?
For instance, if you were planning to travel to visit clients or potential customers in early 2007, consider meeting with them before the end of the year. You can write off 100 percent of your travel costs and 50 percent of any meals or entertainment related to your business activities.
You can also stock up on business supplies to increase your deductions this year. Stamps, toner cartridges, business books, paper, filing supplies. The cost of all of those little things can add up to a healthy tax deduction.
Start Getting Organized
Stop stuffing your business receipts in a shoebox. Organizing your business expenses will help you track and substantiate legitimate tax deductions. And setting up a record keeping system can actually save you money because you won’t have to pay a tax professional to do it for you.
AFS can help. As a member you can save on two record keeping systems.
A-Systems Accounting Software is a full-featured accounting program that’s quick to learn and easy to use. AFS Members save 50 percent off the retail price, including multimedia training valued at $200. The software includes multiple capabilities:
QuickBooks® from Intuit gives you integrated solutions to meet your business needs. It’s the most widely used small-business accounting software. And now AFS Members can save 15 percent on QuickBooks Pro Edition 2006. Plus, you get free shipping.
Defer Income
It’s difficult for small-business owners to think about not squeezing every bit of income out of 2006. But if you’ve had a stellar year, that additional income could result in higher taxes.
If your business can support the move, consider postponing some of those late 2006 invoices. Rather than billing and collecting receipts in the last few weeks of December, push them into early January.
Get A Tax Adviser
A tax professional can offer tax planning – before it’s too late.
Meet with your adviser now to find out how you can reduce your tax bite. If you don’t have an accountant, hire one. After all, the cost is a tax-deductible business expense.
(Posted October 2006)
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