Year End Tax Strategy: Restructuring Entities

The end of the year is only a few days away.  Many of you may beginning to consider your options for tax strategies for the coming year.  One tax strategy that is often overlooked is choosing what type of entity you use to run your business. This is because it may seem confusing or perhaps too time consuming.  But choosing the right business entity can mean saving thousands of dollars each year.  For example, we just counseled one of our clients who has been doing business as a Sole Proprietor to switch to an S Corporation because it would save them $3,000 every year.  What would you do with an extra $3,000 a year?

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There are several things to consider when choosing the right entity for your business.  Here is a list of the different business entities and what they are good for:

  1. Sole Proprietor-good for a small or temporary business that doesn’t make a lot of money.
  2. Partnership-good for small or temporary business with multiple owners that doesn’t make a lot of money.
  3. Limited Liability Company or LLC-great for holding real estate and equipment.
  4. S Corporation-good for lowering tax liability and general liability for small businesses.
  5. C Corporation-good for very large companies and liability protection.

There is a lot to consider and we are not allowed to counsel you on what type of entity you should choose.  This must be done with a lawyer.  It’s not too late to switch to a different entity and to take advantage of tax savings.  Contact us or your tax professional to see if they can help you find a lawyer and complete the procedure for the right entity.

If you want to learn more about what type of business entity might be best for you, click here.

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Health Care Ruled Constitutional and Audits Increase

The end of the year is fast approaching.  We are sure you are busy preparing for holidays.  But here is some juicy tax gossip that we think you might want to think about in between all that holiday fun.

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We all know there has been a lot of political drama about the new Health Care Bill that will require everyone to obtain health insurance or be fined.  Well, the new health care law’s insurance coverage mandate was ruled constitutional by a district court. Meaning the court supports the section of the law that requires people to get health insurance by 2014 or pay the fine.  The issue will end up in Supreme Court as opponents of the legislation will continue to fight the law.  Also, several states have passed laws negating the mandate.

In other news, it seems the IRS is increasing the amount of correspondence audits or audits by letter.  But there is no need to panic if you receive a letter. Just make sure you contact us or your tax accountant, so you can help you figure out exactly what is going on with the letter.  Sometimes the IRS is just missing some information on your tax return.  But in reality, we have seen more and more people being audited this way.  Another great resource for you in avoiding or dealing with audits is an educational CD set called Tax Secrets Revealed.  This CD set will teach you everything you need to know to never worry about being audited again.  Go to avoidbeingaudited.com to learn more.

As always, if you have any questions about these issues , feel free to contact us.  Remember, tax season is coming up quickly, so make sure you are getting your finances in order.

Please have a Merry Christmas and

Very Happy and Safe Holidays!!

Bush Tax Cuts Approved?

One of the biggest topics in taxes and in the news right now is whether or not the government will keep the Bush tax cuts.  This tax bill is being voted on right now. We tried to wait until the final votes were in to publish this blog post, but we are finding that the government is taking longer than we anticipated.  However, all of our sources suggest that the bill will pass. So here are a few things that will happen if the bill passes.  This is not 100% fore sure, so we encourage you to watch the news and wait to see if this new legislation is passed.

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If the bill is passed, it will leave in place all the tax cuts from President Bush’s administration for an additional two years. These tax cuts include:

  • The income tax rates will remain the same. So the top rate for ordinary income will stay at 35%. And tax rates for dividends and capital gains will be 15%.
  • The estate tax will stay at the current rate of 35% for estates worth $5 million or more, estates worth less than $5 million being exempt. This is good news as the rate was scheduled to go up to a 55% tax on estates worth $1 million or more, less than $1 million being exempt.
  • Section 179 will include an unlimited expensing of otherwise depreciable assets for 2011 only.  Full write-offs will be allowed on all newly purchased equipment put into use during the year.  However, this only applies to equipment purchased “new.”  Used equipment is not included.
  • The employee FICA tax may decline from 6.2% to 4.2% for 2011 only. The employer tax rate would remain unchanged at 6.2%.
  • There will be some extensions from the stimulus bills. This will include the expanded child tax credit, the expanded earned income tax credit, and the American Opportunity Tax Credit for college costs.

These are only a few of the things we will see if the bill is passed.  Again, we still don’t know if these will happen, but they more than likely will.  Make sure you keep an eye on the news to see if the bill is passed.

For any questions or concerns you may have with these new tax laws, feel free to contact us!

Yearend Tax Planning Strategies

The end of the year is fast approaching.  If you have not started already, you should begin thinking about your taxes for next year and the options available to you to develop your 2010 tax year strategy.

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With the Bush tax cuts under evaluation, we encourage you to contact us about things you can do to develop the best tax strategy for you and/or your business.  Here are a few things that might help you decide what would be best for your situation.

Tax Strategy Tips

Put Assets to Use before December 31.  There is a bonus depreciation credit for assets, which ends after this year.  The bonus allows for 50% of the asset to be deducted the first year, and the other half is subject to regular depreciation.  This bonus can be taken on new assets with useful lives of 20 years or less including: machinery, equipment, land improvements, and single-purpose farm buildings such as chicken coops.

There is also the option to expense the asset if you don’t want to use depreciation.  The limit for expensing an asset has doubled since 2009, so now assets can be expensed up to $500,000 of their cost.

Buying a Business Vehicle is Beneficial this Year. The max write-off for cars is $11,060, which will be lowered $3,000 after December.  For SUVs weighing over 6,000 pounds, up to $25,000 of the cost can be expensed, half the balance is eligible for a bonus depreciation, and 20% of what is left requires normal depreciation.  Also, the full cost of a pickup truck can be expensed if the truck has a bed that is six feet long and if the weight of the truck exceeds 6,000 pounds.

Business Owners Can Shift Income and Expenses Between 2010 and 2011. Professionals can delay or speed up yearend billing depending on what would be most to your advantage.  This can be helpful if you expect to enter a higher tax bracket and want to prevent it from happening.

Owners can also delay paying yearend bonuses until January so they aren’t taxed until 2011. However, this will not work for a majority owner if the bonus amount is fixed in 2010 and the company has the cash to pay it.

Gym Memberships Can Qualify as Medical Expenses in Some Circumstances. When a doctor diagnoses a specific illness that requires gym use for treatment and you would not have incurred the gym fees if not for the illness, it is possible to deduct these fees.

For more tax planning strategies and ways that you can save money on your taxes, visit www.avoidbeingaudited.com.