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Smart Tax Moves
You Can Still Make for 2002
(Page 3)
Business Tax Savings Tips:
On a business level, do these things before the end of the year
Things that came from the Job Creation and Worker Assistance Act of 2001:
- Did you have a loss last year? Pull out copies of your 2001 tax return. If you had a loss, you can carry it back to your tax return 5 years ago to 1997. See if you can get some immediate refunds going.
- If you bought business assets after 9-11 and before 12/31/01 you were entitled to an extra 30% depreciation. So, if you filed your tax return early, before they passed the new law, you may be able to amend it to take advantage of this extra deduction. (Note: If you already took full depreciation on your assets, never mind.)
- Cars: For cars bought after 9-11, luxury cars and other vehicles subject to the "cap" on depreciation, will be able to claim an extra $4,600 in the year the vehicle is placed in service, due to the extra 30% depreciation mentioned above.
Note: When buying an expensive new car, you can avoid the luxury auto limitations on depreciation. If you want to be able to write off the full cost of your car over 5 years with a huge chunk ($24,000) in the first year (2002), look for cars that weigh over 6,000 pounds - i.e. 2002 Rolls-Royce Corniche is 6031 pounds at only $363,000; SUVs like the Ford Excursion; Toyota LandCruiser … This loophole also applies if you buy the vehicles used.
- Teachers: Gather your receipts for classroom materials. You'll be able to deduct $250.00, even if you are not itemizing.
Things you should do, in general:
- Cash receipts - gather them now and start doing your bookkeeping. Get your appointment book out and see if you have any lunches, dinners, etc. for which you paid cash that you've never recorded in your books. Remember to take into account parking meters, payphones, valets, tips to doormen, porters, hairdressers, etc.
(If you need a good bookkeeping tool, here are two options:
- Open KEOGH account before December 31, 2002
All you need to do is put about $25.00 in to open it. Then you can wait to put in all the rest of
the money until you file your tax return (Until Oct. 15, 2003)
- If have no employees look at the new personal 401k as a retirement alternative. It will let you fund a substantial portion of your profits (or wages) into a 401k - for both the employee's and employer's portion. Also, like a corporate 401k, it will let you borrow up to half the money you've deposited (up to $50,000 per person - which means $100,000 for husband and wife) if you should need the funds. The extra special thing about it is, you can roll over your existing IRA funds into the account and borrow the money almost immediately. (Fees run around $100/year per person. Which is only double the typical KEOGH or SEP-IRA fees.)
- Incorporate - Set up S-Corp
If your business has profits of $50,000 or above, you could save yourself over $5,000 just by reducing your self-employment taxes. (SE tax = 15.3% of your profits!) S-Corporations profits are not taxed for Social Security and Medicare. There are several other benefits. Listen to your Tax Pro.
- Set up cafeteria plan for employees
Talk about your win-win! If you set this up for your employees, they'll be able to pay their child
care, medical, education and legal bills BEFORE taxes. You save the employer's share of Social Security and Medicare (7.65% of their wages), related Federal and State Unemployment taxes, even Workers Compensation insurance. Any expense that you have, that is based on the total wages goes down dramatically.
Yes, these plans do have administration costs. But the costs are much less than the savings. Even for plans with only 1-3 people in them.
- Hire
your spouse and children. (See TaxMama's article, "Tips For Families")
- Buy next year's Capital Assets before year end
If you expect to need new computer equipment, copy machine, fork lift, chain saw, whatever — go ahead and buy it before the end of the year. Even if you put it on a credit card or take out a bank loan, or finance the purchase, the deduction takes place in the year you BUY it. Not when you pay for it
- Consider hiring Work Opportunity Credit Candidates
- Do you qualify for Office-in-Home?
Follow any or all of these suggestions - NOW! I guarantee that you will save far more than the cost of the consultation with the tax pro who helps you make it all work. Several of the Enrolled Agents and CPAs who took this material to their clients called me back.
Their clients couldn't believe the savings of $3,000 - $10,000 on their current year taxes. These guys are heroes now. Most of the personal ideas you can do on your own. Do them. You will be laughing all the way to the bank.
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