Newsletters
Business Advice
Departments
 |
|
|
|
|
||
Sponsored Sections
Column by Barbara Weltman
Learning From Past Tax Bills
When preparing your taxes, the missed savings and lost opportunities of your last return can be your best guide.
Your 2006 tax return may be a faint memory by now -- but it shouldn't be. Use the lessons from your past return to guide you in strategies for the current-year that will pay off when you file your next return. Here are some key areas to review:
Domestic production activities
If your business produces products in the United States, builds residential or commercial properties, or engages in other qualified activities, make sure you can claim the domestic production activities deduction. In 2006, the deduction was only 3 percent of net income from these activities, but in 2007, it increases to a hefty 6 percent. One of the chief limitations to maximizing this deduction is that it cannot exceed 50 percent of W-2 wages. Review your staffing needs and arrangements. For example, determine whether it pays to put current contract workers or subcontractors on the payroll in order to boost W-2 wages.
Upgrading equipment
You may need additional computers, machinery, or other equipment to grow your business. You can opt to deduct the cost of equipment purchased this year -- up to a total of $112,000 -- rather than depreciate your outlay over five years, seven years, or longer periods. While you have until you file the return to decide whether to elect expensing, the equipment must be placed in service by the end of the year.
Even if equipment is still useful, it may pay to buy newer equipment that will provide energy savings. Look for Energy Star ratings for guidance.
Note: If the Small Business Tax Relief Act of 2007, a measure tied to the pending minimum-wage bill, is enacted, the expensing limit for 2007 would increase to $125,000.
Providing more benefits
Providing fringe benefits for your staff not only creates strong company morale and helps to recruit and retain talented workers, but it also cuts your tax bill. Most fringe benefits are deductible by the business, although owners do not enjoy the same tax-free treatment accorded to rank-and-file employees for all types of benefits. Increased limits on various perks for 2007 means greater write-offs if you implement them. Here are a few to consider:
-
SEP retirement plans. Company contributions can be up to $45,000 for those earning salaries of at least $180,000.
-
Health savings accounts. Company payment of high-deductible health insurance is fully deductible, and contributions to employees’ personal health savings accounts, also deductible, can be up to $2,850 for employee-only coverage or $5,650 for family coverage.
-
Transportation benefits. You can also cut your tax bill by paying for monthly transit passes of up to $110 per employee.
Recordkeeping
Maybe you couldn't deduct a legitimate business expense because you didn't have the records to back it up. Use this costly lesson to reassess your recordkeeping procedures. Get a better handle on tracking receipts and recording deductible expenses as the tax law requires so that you can optimize your deductions.
For example, in 2007, you will not be able to deduct cash contributions unless you have a written acknowledgment from the charity or a bank statement that shows the amount of your gift.
Estimated taxes
If you received a tax refund, don't compliment yourself: Kick yourself for having made an interest-free loan to the Treasury! As you plot out your tax-saving strategies for 2007, be sure to reflect them in the amount of wage withholding and estimated taxes you pay for the year.
Try a RISK-FREE Issue of Inc. Today!
Select Services
