In the rush to get tax returns prepared and filed by April 15th, many overpay their taxes. Following are a few tax reduction tips that could help you save a bundle.
Tax Credit For Starting A Small Business Pension Plan
Establishing a pension plan can help you retain important employees. What many business owners don’t realize is a tax credit can be claimed if the business has 100 or fewer employees. Meet this requirement and you can take a tax credit of up to $500 in each of the first three years of the plan. Tax credits are extremely valuable because they are deducted directly from the taxes you owe, not gross revenues.
The credit is 50% of certain start up costs you incur in each of the first three years. The costs include the expenses incurred in establishing and maintaining the plan. They also include the cost of any educational retirement planning programs you provide for employees.
For example, first assume that you spent $1,500 starting a pension plan for your employees in 2004. Next assume that you will spend $1,200 in both 2005 and 2006 for maintaining the program and educating your employees. In this scenario, you would be eligible to claim a tax credit of $500 in 2004, 2005 and 2006.
Personal Loans To Business
Many business owners lose track of loans they make to their business. As a result, they incorrectly classify the proceeds of the loan as part of their gross revenues. This artificially raises the gross revenues of the business and adds to the tax liability. Closely review your records for 2004 to make sure you are not making this mistake. Pay particular attention to charges on personal credit cards. You will be surprised how quickly the numbers add up.
SUV Deduction Wounded, But Still Alive
Much has been made about the “SUV Tax Deduction” that allowed purchasers of SUVs over 6,000 pounds to immediately deduct up to $100,000 of the cost. Many mistakenly believe that the American Jobs Creation Act of 2004 eliminated this deduction. It did not. Instead, it reduced the deduction to $25,000 with the remaining amount allocated to depreciation. This is still a significant immediate deduction. If you purchased a non-SUV truck that weighed over 6,000 pounds in 2004, you are not restricted to a “mere” $25,000 deduction.
Tsunami Relief Contributions Paid in 2005
Millions of Americans contributed to charitable organizations providing relief to Tsunami victims. Typically, charitable contributions are deducted in the year they are made. New legislation, however, allows you to deduct Tsunami contributions you made in January 2005 on your 2004 tax returns. Alternatively, you can wait and deduct the donation on 2005 returns. Unfortunately, you cannot deduct the contribution on both!
Sales Tax Deduction
If you itemize deductions, you have a choice of deducting your state and local income taxes OR your state and local sales tax. This option is available for the 2004 and 2005 tax years. If you live in a state that does not collect income tax, the optional sales tax deduction should be claimed for significant tax savings. See IRS Publication 600 for more information.
Deduction for Discrimination Lawsuit Costs
If you were required to pay attorney’s fees and court costs associated with a discrimination lawsuit, you may be able to claim a tax deduction. The deduction is available only for costs and fees incurred after October 22, 2004 in relation to a judgment and settlement. The deduction is not limited by the alternative minimum tax. Realistically, this deduction will be more viable for the 2005 tax year, but a few taxpayers may be eligible this year.
There are numerous deductions and credits available if you take the time to look for them. Taxes can be confusing, but the savings justify the time and effort of finding all available deductions and credits.
New Law Alters Highway Use Tax Regulations: Installment Payment Option Removed
The IRS has announced significant changes to the federal highway use tax regulations, impacting truckers and owners of heavy highway vehicles. As part of the American Jobs Creation Act of 2004, the option to pay the highway use tax in installments has been eliminated. This change affects filers of Form 2290, Heavy Highway Vehicle Use Tax Return, starting from the tax year beginning July 1, 2005, and ending June 30, 2006.
IRS Approves 2006 Toyota Highlander Hybrid for Clean Fuel Deduction
The IRS has officially recognized the 2006 Toyota Highlander Hybrid as eligible for the clean-burning fuel deduction. This means that taxpayers who purchase this hybrid vehicle new in 2005 can claim a tax deduction of up to $2,000 on their Form 1040.
Gambling Income and Expenses - Taxes
Gambling income encompasses a wide range of winnings, including lotteries, raffles, horse and dog races, and casinos. This income also includes the fair market value of non-cash prizes such as cars, houses, and trips. Understanding the tax implications of gambling winnings and losses is crucial for accurate reporting and compliance with IRS regulations.
