Tax Savings Tips

By: Brant M. Keller

It's bad enough if your jaw drops when you see the amount of taxes you owe. You don't want to have the same reaction when you learn it could have been avoided!

Here are several tips to keep your business taxes to a minimum.

Keep your documents and records in good condition and good order. If your professional advisor has to spend time interpreting and balancing the information he or she has been provided, you'll be billed for those hours. Finding out how to prepare your information is one of the best ways to reduce costs. Ask your advisor what you or your staff can do to prepare your information in an easily understood format.

Contain Business expenses. For the corporate client or sole proprietor, this as important as reducing your tax burden. Before talking to your advisor, evaluate the services you paid for in previous years. List each type of service you are receiving and evaluate individually received benefits. Think about the amount of planning and counseling you received last year and the benefits that planning provided in the current period. If you simply drop your information at the advisor's office and then return a few weeks later and pick it up from the receptionist, you are not benefiting from tax planning and counseling.

Consolidate your debt. If you are overextended or have gotten in over your head, consider an equity loan (note: you must own a home) to bundle your debt and write-off your mortgage interest.

Avoid Florida Intangible Tax. You can avoid the Florida Intangible Tax when you invest in primarily tax deferred investments and/or Florida Municipal tax-free bonds. For large investors, consider using a Florida Intangible Trust (FLIT) to avoid large intangible tax bills.

Put your dollars to work through your company retirement plans. You'll get a tax deduction, plus your money will grow tax deferred until withdrawn. Business owners may choose from many IRS plans including 401(k), SEPOIRA, SIMPLE IRA and KEOUGH.

Maximize contributions to qualified plans. Business owners do not have to make a contribution to their qualified employer plan until the day their tax return is due. However, for businesses on a calendar accounting year, the plan must be established prior to Jan. 1. Make sure you're contributing the maximum amount or that key employees are receiving the highest allocation. For example, sometimes an age-based profit sharing plan or a defined benefit plan can increase the contribution or increase the amount allocated to key employees of a company.

Contribute to your own IRA. Taxpayers are entitled to deduct $2,000 ($4,000 for husband and wife) for an IRA contribution annually. Those who are covered by an employee company qualified retirement plan can sometimes still be eligible for a deductible IRA contribution if their adjusted gross income is under certain limits. Individuals who may qualify should monitor their income to make sure their IRA deductions will be preserved.

Do not wait until April to make your IRA contribution. Year-to-year and season-to-season, the stock market gains occur predominantly between late October and early May. Waiting until April to invest shortens your upside considerably.

Defer income until retirement or separation of service by entering into a deferred compensation agreement (prepared by an attorney), which will delay that income until the time of payout specified in the agreement.

Accelerate income by increasing salaries or paying bonuses now if you're in a higher marginal income tax bracket in the following year. A lower bracket this year will save tax on the income.

Bundle medical expenses. Taxpayers can only deduct eligible medical expenses for themselves, their spouses and dependents to the extent the annual costs exceeds 7.5 percent of adjusted gross income. The timing of some medical expenses can be elective. Consider incurring these discretionary medical procedures this year if the total amount of medical expenditures for the year will exceed the 7.5 percent threshold amount.

Accelerate Depreciation. Keep in mind that business owners who purchase depreciable property, such as a car or equipment, can accelerate depreciation on that item so that up to 40 percent of its cost can be deducted the first year. The complex rules associated with this deduction can be explained by your CPA.

Remember, it's never too late to start reducing taxes. All it takes is time and planning before you file.

Brant M. Keller, CRP, RFC, CFS, is the founder of Financial Advisory Consultants, LLC, a Naples-based registered investment advising firm. He is a lecturer and author of several articles on investment and estate tax strategies. He also hosts live business and stock market reports Monday through Friday on WGUF-98.9FM.