Tax Strategies Seminar Its important to begin closing your year end financials out now so you can work on lowering tax obligations. The simplest things to do if you are facing a tax liability are: 1) maximize your retirement plans 2) make any capital expenditures prior to 12/31 section 179. 3) Make last minute changes to how revenues and expenses are recorded. Year end profits = year end tax liabilities Ways to minimize tax obligations Solo 401(k), individual 401(k) and single 401(k) CONTRIBUTIONS. Allows you to make greater tax-deductible contributions than a SEP-IRA or a SIMPLE IRA While SEP-IRAs also allow large contributions of as much as $49,000, they are limited to 25% of compensation. People age 50 and older can’t make catch-up contributions Limits of Section 179 (updated as of Sep 27, 2010) Section 179 does come with limits - there are caps to the total amount written off ($500,000 in 2010), and limits to the total amount of the equipment purchased ($2,000,000 in 2010.) The deduction begins to phase out dollar-for-dollar after $2 million, so this makes it a true small and medium-sized business deduction. This is a great way to acquire equipment and capture a tax write off. There are a few simple steps you can take to help sour out tax liability with your general ledger. For example: 1) Prepaid expenses You can pay insurance, rent , utilities , vendors upfront now for 2011 and take the tax write off for 2010. 2) Recognizing revenues If you have large orders / jobs for the holidays and you already owe taxes for 2010, you should recognize that revenue for 2011. 401k loans and home equity loans The downsides of pulling money out of your 401k Unless you repay the loan, it is considered a premature distribution. You would owe federal and state income taxes as well as that 10% penalty if you are under age 59 1/2. The loan isn't tax deductible. It's considered a consumer loan, so there is no tax advantage. Dave Ramsey has been quoted as saying 401k loans are equivalent to 40% loans once interest and penalties are added up. Mortgage interest is tax deductable . A comprehensive tax analysis needs to be done by your tax professional to assess what approach you should take when borrowing money. They will determine if you should file a standard deduction or itemize your deductions. Steps to take for fiscal year end 2010 and going into 2011; 1)Stay on top of your accounting each and every month. 2)Understand where your finances are by reading your income statement and balance sheet 3)Keep 3-6 months worth of cash (not credit lines ) on hand at all times. The businesses that survived this recession all went into the slowdown with strong cash positions 4)Keep your personal credit clean and checked annually. 5)Understand how every transaction you make will have tax implications impact your company’s financials 6)Have your tax professional answer for you each month the following question” if this month was year end , what would my tax liability be and what steps can I tax to minimize it” By asking this question each month, you will see your tax obligations quickly dwindle. 7)Last but not least, WRITE A SOLID BUSINESS PLAN AND MAKE SURE YOU ARE FOLLOWING IT EEVERY DAY !! THIS WILL KEEP YOU FROM LOSING FOCUS.
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