Displaying items by tag: tax planning

What's your plan for living a long life?

Most people believe they are likely to live a long life past their 80s.

When you live a long life, you are more likely to need long-term care. Maybe you've seen this with an aging parent, a friend or a neighbor.

The real question then is "how will it impact your finances?".

Special tax incentives for people who plan.

Tax incentives are ow available to those who plan ahead.

Business Owners

Business Owners who plan now can take advantage of special tax incentives for tax-qualified long-term care insurance protection. Living a long life is likely. Planning for it is a real necessity and a smart financial move. Long-term care insurnce protection can be 100% tax deductible as a business expense. Plus, owners can choose who is covered, even spouses. Realize that it costs no more to work with an experienced professional. Your long-term care insurance agent can help you get the coverage that's best suited for you and your business.

In a nutshell, business owners can deduct the cost of long-term care insurance protection for themselves, for their spouses and sonetimes even teir parents on a favorable basis. You may use pre-tax corporate dollars to pay for your post-retirement asset protection.

A word of caution. Waiting can be a big mistake because you must "health qualify" for long-term care insurance coverage.

As the end of the year approaches, now is a good time for you to start planning for taxes by taking various actions that may save taxes for this year, next year, or both years. Act quickly to reap the most benefits—these strategies will be of no use after December 31.

Year-end planning always involves some educated guesswork, but this year poses a bigger challenge than most. With Republicans winning control of the U.S. House of Represen-tatives and picking up seats in the Senate, it is difficult to know exactly how tax changes will affect you.

Congress must decide whether to retroac-tively extend a number of tax provisions that expired at the end of 2009. In addition, without approval to extend the Bush tax cuts, individuals will face higher tax rates on their income, including capital gains. Unless Congress changes the rules, the estate tax, which isn't in effect this year, will return next year with a 55% top rate.

We have compiled a checklist of actions that can help you save tax dollars if you act before year end. These moves may benefit you regardless of what the lame duck Congress does on the major tax questions of the day. Not all actions will apply in your particular situation, so please review the following list and contact us so that we can advise you on which tax saving moves to make.

Year-End Moves for Individuals

• Postpone income until 2011 and accelerate deductions into 2010 to lower your 2010 taxes. Doing so may allow for larger deductions and credits that normally are subject to income phase outs, especially if you expect to be in a lower tax bracket next year. (Then again, doing the opposite may be more beneficial, depending on the circumstances)
• It may be advantageous to defer your year-end bonus until next year.
• Bunching your itemized deduction, such as real estate taxes and medical expenses, may save you taxes this year.
• Bunching your itemized deduction, such as real estate taxes and medical expenses, may save you taxes this year.
• Increase the amount you set aside for next year in your employer's health flexible spending account. Don't forget over-the-counter drugs, such as aspirin and antacids, do not qualify.
• Realize losses on stock while substantially maintaining your investment position. For example, you can sell the original holding, then buy back the same securities at least 31 days later. We advise meeting with us to discuss year-end trades.
• Increase your withholdings if you are facing a penalty for underpayment of federal estimated tax. Doing so may reduce or eliminate the penalty.
• Consider taking an eligible rollover distribution from a qualified retirement plan before year-end if you are facing a penalty for underpayment of estimated tax. Income tax will be withheld and applied pro rata over 2010. You can then timely roll over the gross amount of the distribution to a traditional IRA. No part of the distribu-tion will be includible in income for 2010.
• Make energy saving home improvements to your home, such as insulation and energy efficient windows, and qualify for a 30% tax credit, up to an aggregate of $1,500 for 2009 and 2010. If Congress does not act, this tax break will not be around after this year. Additionally, you can earn substantial tax credits for installing energy generating equipment (such as solar electric panels or solar hot water heaters) to your home.
• Convert your traditional IRA into a Roth IRA if doing so is expected to produce better long-term tax results. Distributions from a Roth IRA can be tax free but the conversion will be taxable. You can choose to pay the tax on the conversion with the 2010 return, or half with the 2011 return and half on the 2012 return.
• Take required minimum distributions (RMD) from your employer sponsored retirement plan if you have reached age 70 ½. Failure to do so can result in a penalty. A temporary tax law change waived the RMD requirement for 2009 only, but the usual withdrawal rules apply full force for 2010.
• Make annual exclusion gifts before yearend to save gift tax (and estate tax if it is reinstated). You can give $13,000, tax free, in 2010 to an unlimited number of people.

Year-End Moves for Business Owners

• If you hire a worker who has been unemployed for at least 60 days, your business will be exempt from their 6.2%
  share of the Social Security payroll tax on the new-hire for the remainder of 2010. Plus, if you keep that new-hire on the payroll for a continuous 52 weeks, your business could be eligible for a nonrefundable tax credit of up-to $1,000 for 2011.
• To qualify for the 50% bonus first-year depreciation allowance, put new business equipment and machinery in service before year-end. If Congress does not take action, this bonus won't be available for property placed in service after 2010.
• The maximum amount you can expense for a tax year beginning in 2010 is $500,000 of the cost of qualifying property placed in service for that tax year. Also, within the overall $500,000 expensing limit, you can expense up to $250,000 of qualified real property. Note that at tax return time, you can choose not to use expensing (or bonus depreciation) for 2010 assets.
• Set up a self-employed retirement plan if you are self employed and haven't done so yet.
• Consider establishing a retirement plan for your business. Employer contributions to qualified plans are deductible.
• Increase your basis in a partnership or S corporation if doing so will enable you to deduct a loss from it for this year.
• Consider whether to defer cancellation of debt income from the reacquisition of an applicable debt instrument in 2010. The business can elect to recognize the income ratably over five tax years beginning with the fourth tax year following the tax year in which the repurchase occurs (i.e., beginning with 2014).
• Consider using a credit card to prepay expenses that can generate deductions for this year.
• Accrual method businesses should consider accruing year-end bonuses to employees who are not controlling shareholders. They are deductible in the current year even though paid in the following year, and the bonus won’t be taxable to the employee until next year.

If you choose to prepare your own financial statements, you will need to gather a long list of items for your tax preparer.  The below list will assist you to come well prepared to meet with the tax preparer.

Use this tax organizer checklist to assist you in gathering information and documentation necessary for the preparation of your business income tax return.

Profit and loss statement for the tax year
Yes   No
Balance sheet as of the last day of the tax year
Yes   No
Balance sheet comparison for last day of tax year vs last day of previous tax year (if available) To easily determine asset acquisitions. For the purpose of retained earnings reconciliation. Verify that no changes have occurred to prior year-end balance sheet after journal entries to adjust for the that year’s tax return have been recorded
Yes   No
If you are a QuickBooks/Peachtree user, please save the general ledger for the entire tax year into a Microsoft Excel spreadsheet or Acrobat Reader (pdf) format and provide the general ledger to me in an e-mail / save in electronic format and provide to me.
Yes   No
Listing of additions to assets recorded on the balance sheet during tax year with a description of the item, purchase date and amount paid (including financed amount). Please indicate whether items are brand new and do not include items which have been expensed. [Simple definition of an asset: Any item which was purchased (incl sales tax) for $350 or more from which the business will benefit for more than one year must be classified as an asset.]
Yes   No
Listing of any assets disposed of during tax year – how disposed of and amount sold for
Yes   No
Bank reconciliation
Yes   No
If there has been a change in the ownership structure, please provide names of e.g. new investors with names, addresses, social security number, date of investment and amount for each date
Yes   No
Additional paid-in-capital per owner, date contributed and amount contributed
Yes   No
Distributions/draws per owner for the tax year
Yes   No
Total miles driven and business miles driven for each business vehicle for which you use actual method. (Form to complete on pg 2. Do not provide data on personal vehicles used for business for which you use the mileage reimbursement method)
Yes   No
Forms W-3, W-2s, 1096, 1099-INT, 1099-DIV
Yes   No
Was medical insurance offered to employees (incl owners)? If an S-corporation, what amount was paid in premium for an owner who owns more than 2% of the S-corporation? Was the premium amount added to gross wages on the owner’s W-2?
Yes   No
Charitable contributions to [501(c)(3)organizations]:
Provide cash amount (includes cash, check, credit, debit). Provide non-cash amounts, description of items, dates donated and to which organization. If this is not provided, we will assume that the entire amount was donated in cash
Yes   No
Provide identification numbers (if you have not provided it before):
Federal employer identification number
State identification number (not state unemployment insurance ID number)
Yes   No
Yes   No
Padgett income tax engagement letter, signed and dated
Yes   No

 

This article is a continuation of the last 2 blogs on tax planning for your 2009 tax saving.  Act quickly to reap the most benefits—these strategies will be of no use after December 31.

• If you’re thinking of donating a used auto to charity, be sure to inquire whether the charity plans to sell the car or use it in its charitable activities; the latter may yield a bigger deduction.
• Consider making credit-eligible energy saving improvements to your home, such as adding extra insulation or energy-efficient windows, to qualify for a tax credit. The largest credits are available for geothermal and solar energy products.
• Thinking of buying a car? Do so before year end to assure a deduction for state sales and excise tax on the purchase.
• If you are receiving Social Security benefits, there are several steps you can take to reduce or eliminate tax on your benefits.
• If you are an employee, consider asking your employer to increase withholding of state and local taxes to pull the deduction of those taxes into this year.