Time to get Serious about 2005 Tax Planning
Category: Tax Law and Planning
From James Jimenez, CPA of Fass & Associates, P.C.. James can be reached at email@example.com:
"IT’S TIME TO GET SERIOUS ABOUT 2005 TAX PLANNING
Interested in saving taxes? Now’s the time to act. Reviewing your business or personal situation before year-end can help lower your 2005 tax bill. Here are some strategies to consider.
Keep an eye on your tax bracket. Moving upward from bracket to bracket costs you at least two percent higher tax on the additional income. Knowing when to take — or delay — earnings such as bonuses or commissions allows you to control your tax bracket. If you’re a business owner, think about adjusting your salary between years.
Boost contributions to your 401(k) or other retirement plan. The benefits are two-fold: current taxable income is reduced, and you enjoy tax deferral on the plan growth.
Delay sales to qualify for long-term rates. The tax rate for most long-term capital gain assets is 15% (5% for those in the lower two tax brackets). Short-term gains are taxed at ordinary income rates, which can be as high as 35%. Consider holding assets long enough (more than 12 months) to qualify for the lower rates.
Elect the installment method. If delaying an asset sale is not an option, you still might be able to defer the income and related tax. For sales of certain property, you can choose installment reporting.
Regulate your investment income. Delay interest income until 2006 by purchasing a certificate of deposit (CD) or other security that matures after year-end.
If you’ve made a loan that you’re now unable to collect, you may be entitled to a bad debt deduction. It’s important to be able to show that you tried to collect, so take the necessary steps before year-end.
More tax-saving strategies to implement before year-end include transferring assets to children, making charitable contributions, bunching itemized deductions, and taking advantage of increased business asset expensing amounts."