Time is running out, but there is still time to pare down your tax liabilities for 2006. Many of the ideas listed below require you to take action before December 31, and so don’t procrastinate any further.
- Don’t let business matters slide at year-end. Schedule an appointment with your tax professional sooner rather than later, and, whether your business is a small partnership or a larger firm, hold a board meeting before the year ends to declare bonuses and address tax issues.
- Support local charities. If you are a partner in a small business venture, or have an S corporation, there may be opportunities for you to cut taxes when you support a holiday charity luncheon or a business breakfast to benefit a local organization. Your involvement not only might help promote your firm within the business community, but - in most instances - it could also allow you to take a personal tax deduction for some, or all, of the cost of your involvement.
- Explore how the Pension Protection Act of 2006 might offer you significant tax breaks for other charitable donations. Check with your professional tax consultant to determine if you can take advantage of some new tax breaks created by the extension of provisions originally enacted after Hurricane Katrina hit. Entrepreneurs who operate sole proprietorships, partnerships, or S corporations may deduct up to 10 percent of their income for food donations to charities that help children or those who are sick or needy. (Income from sole proprietorships, partnerships and S corporations is taxable on owners’ individual tax returns).
- See if the new tax savings possibilities created by the Pension Act to support retirement planning can help you. The Act made Roth 401(k) plans permanent. Just like a Roth IRA, after-tax dollars are contributed to the Roth 401(k) - not pre-tax as in other traditional retirement plans. But, when retirement distributions and earnings are made from the Roth 401(k), they are exempt from income tax - making the Roth option very attractive to business owners in high-income brackets.
- Do some year-end shopping for your business. Under Section 179, purchases up to $108,000 may be deducted on 2006 returns rather than amortized over several years - if the taxpayer has earned income to offset the deduction. A small business owner on a budget could deduct for the cost of one or two PCs.
- Be energy efficient. For the first time, some of that year-end business expenditure may also generate additional tax breaks if it can be described as "energy efficiency improvements." If the expenditures do qualify as such, you may be able to deduct as much as $1.80 per square foot for buildings that achieve a 50 percent reduction in energy costs as a result of the new equipment. Your tax advisor can provide more details on how business owners can qualify for these new tax breaks.
Despite the many demands on you during the holiday season, a little time invested now on tax planning can save you plenty of money and time come April 2007.