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by Gene Polley
 Gene Polley |
December 7, 2004—For small business owners, hopefully
your advisor laid out a comprehensive tax strategy which you have
followed throughout the year. There have been a couple of "new
wrinkles" thrown in by the Jobs Creation Act passed by Congress
in October. Bearing the new tax act in mind, here are a few of the
smart end-of-year tax strategies that you should discuss with your
advisor:
Purchase a new personal vehicle or boat and deduct the sales
tax in 2004. Taxpayers will have the option of deducting either
personal sales tax or personal state income tax on their 2004
tax return thanks to the new tax act. Boats and vehicle taxes
will be in addition to either an IRS supplied sales tax table
amount or actual receipts.
Prepaying State Income Taxes - unless you will be subject to
the Alternative Minimum Tax (AMT) in 2004 or plan to deduct sales
tax in 2004 (under the new tax act), you should consider paying
your fourth quarter estimated state tax or paying any expected
state liabilities by December 31 so they are deductible this year.
Use up cash in Flexible Spending Accounts. These accounts have
a "use it or lose it" provision, so it's important to
use up any leftover balance by Dec. 31. One area that many folks
forget is eligible for reimbursement is over-the-counter drugs
such as pain medications, allergy medicines, cold treatments and
products for adult incontinence.
Closing your business between Christmas and New Years. If your
business is on a cash basis, you would probably benefit by being
closed the last week of the year. Then those customers who are
also on a cash basis and pay off their account balances at year's
end (to get the deduction in 2004) would be generating 2005 income
for you and not 2004 income.
If you are planning to purchase a new business vehicle soon,
do it and place it into service before year-end to get a tax deduction
this year. SUVs with a gross vehicle weight above 6,000 pounds
are now eligible for only $25,000 first year depreciation under
Section 179 under the revised tax code. The balance of the purchase
price and non-SUVs, however, are still eligible for the 50% bonus
depreciation through Dec. 31 when it expires. Non-commercial vehicles
have a $10,710 maximum first year depreciation in 2004. This drops
to only $3,060 after Dec. 31.
Purchase new equipment for your business and place it into service
by Dec. 31 and you can expense up to $102,000 for the year for
most small businesses.
If you have appreciated stock, consider donating the stock instead
of a cash donation to your favorite qualified charity. You get
the full market-value deduction but spare yourself the capital
gains taxes.
If you have capital gains on stock sold in 2004, consider selling
some stock at a loss to use up the gains. If the loses on your
stock sales exceed the profits you can take up to a $3,000 loss
against wages and other income. Excess loses above $3,000 would
be carried to future years.
Fully fund your retirement plan. You have until at least April
15 for most plans and up to the extension date for many plans
to be funded. Many retirement contributions are tax deductible.
If you donate a vehicle to charity before year's end you will
be eligible for a more generous calculation of the vehicle's value
for deduction purposes than next year under the new tax code.
Go easy on holiday partying if your corporation reimburses you
for it. If you are the director, officer or 10% greater owner
of a "C" corporation, the corporation is now limited
in deductions for entertainment for you to the extent they are
included in your gross income. This became effective October 22.
If you were the victim of a casualty loss in 2004 in a federally
declared disaster area, consider amending your 2003 return and
taking the loss in that year instead if it generates a greater
benefit. If you elect to do so, be careful of filing deadlines
since you must file on a timely basis without extensions.
If you plan to take advantage of any of these last-minute tax-savings
ideas, be sure to call your business advisor first to be sure
it will provide the benefits you anticipate given your particular
tax situation. If you do so, you may actually be smiling at tax
time next year.
Gene Polley is a Business Advisor in Fiducial's company-owned
office in San Diego. He is also an Enrolled Agent and has a MBA in
financial management.
Whatever your small business needs, your Fiducial tax
and financial professional can analyze your situation and recommend an
appropriate action plan. To locate a Fiducial office nearest you on fiducial.com,
see the Zip Code Locator located in the upper right hand corner of the
page. Do you have a particular topic that we should be writing about that
can help your business? Please send your suggestions to: stephen.parezo@fiducial.com.
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