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Tax Planning
Taking advantage of year-end deductions

It may not be the best time of the year to think about taxes, with the holidays and such, but this would be the time to maximize the 2009 deductions by taking some last-minute credits.

Of course, it’s just the right time of year for charitable contributions, so that’s one quick way to earn some credits. But new rules a couple of years ago have made giving a little bit more involved from the red tape perspective: You have to keep records not only for noncash contributions but also have receipts for cash contributions. And if you’re donating a vehicle for which you want to deduct more than $500, the charity must give you the IRS form 1098-C stating for how much that item sold, which is the limit you can claim.

Deferred billing — waiting to bill some accounts until after the first of the year — as well as paying off bills earlier are among the ideas. It may be tough to achieve this in a downturn market, but if a business can prepay rent for several months or an entire year, that deduction would count toward this year’s expenses if the business uses the cash method for its accounting.

Many businesses wait until the end of the year to purchase major equipment. Section 179 of the code allows for taxpayers to claim the entire purchase amount, instead of amortizing, up to $250,000 as long as the total equipment purchases don’t add to more than $800,000.

It may be difficult to make major investments this year due to the economy’s impact on business, but those that may be able to do it should consider the idea, suggests Silverdale CPA Randy Biegenwald, whose practice is located in Old Town. The reason, he says, is because in 2010 the $250,000 limit will be cut roughly in half. Even those who finance it can deduct the entire amount this year.

Businesses can also get a deduction up to $25,000 for purchasing an SUV (a vehicle with gross weight between 6,000 and 14,000 pounds). “This tax credit is still there but I would get some advice on it because there are some rules,” Biegenwald said. “And it doesn’t do you any good if you don’t have any taxable income.”

For individuals, one area to examine is medical bills. If you have had a major illness this year and have big bills, try to pay them off before the end of the year if that helps you get past the 7.5 percent limit of adjusted gross income. “If you think you can itemize, pay it off before the end of the year,” Biegenwald said. “Even if you put it on a credit card, you can still deduct it.”

A good rule of thumb is to try to figure out the year’s total income and tax bracket before deciding what deductions would be most favorable.

(Editor’s note: This article is presented for informational purposes only and should not be received as professional advice. Each individual situation is different; consult a professional before applying the rules to your own situation.)

 
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