Ten Top Tax-saving Ideas at Year-end
Popular techniques for individuals and business ownersNow is a good time to figure out how to cut your 2004 tax bill. Although everyone's situation is different, the National Association for Black Accountants www.nabainc.org (NABA) offers ten popular year-end strategies for individuals and small-business owners:1. Charitable donations: As a general rule, the full amount of a cash donation is deductible on the donor's personal tax return. If a donation is made by credit card at year-end, the gift is deductible in 2004, even if the charge is not actually paid until next year. Added tax break: For donations of property, the full fair-market value is deductible if the property has been held for more than one year.2.
Alternative minimum tax liability: The alternative minimum tax (AMT) can sneak up on unsuspecting taxpayers. It applies if your AMT liability, based on a special tax computation involving tax preference items, exceeds your regular tax liability. Individual taxpayers should have their AMT liability calculated before year-end. Depending on the result, it may be advisable to shift tax preferences to next year to avoid or reduce AMT liability. Alternatively, you might accelerate income into 2004 if the AMT rate is lower than your top marginal tax rate.3.
Section 179 allowance: Under Section 179 of the tax code, you can elect to currently deduct some or all of the cost of business assets placed in service anytime this year. For 2004, the maximum Section 179 allowance, which was quadrupled from $25,000 to $100,000 for 2003, has been increased slightly to $102,000. The maximum allowance reverts to $25,000 for the 2006 tax year.4. Bonus depreciation deduction: There is an extra tax incentive for buying equipment for your business this year. For assets acquired after May 5, 2003 and placed in service before January 1, 2005, you can claim a 50% bonus depreciation deduction in addition to the regular first-year depreciation deduction and the Section 179 allowance.
As things stand now, the bonus depreciation deduction is scheduled to go off the books after 2004. 5. Estimated tax penalties: Even if you do not have enough federal income tax withheld during the year, you can avoid an estimated tax penalty by meeting one of two safe harbor exceptions. No penalty is imposed if annual tax payments for 2004 equal 90% of the current year's liability or 100% of the prior year's tax liability. The percentage for the 100% safe harbor is increased to 110% if your adjusted gross income (AGI) for the prior year exceeded $150,000.6.
Medical and dental expenses: You may deduct unreimbursed medical and dental expenses to the extent the annual total exceeds 7.5% of your AGI. Try to bunch together non-emergency expenses (e.g., new eyeglasses or dental cleanings) in the tax year that provides the best opportunity for a deduction. Note: Do not forget to include co-payments required under a company health insurance plan.7. Dependency exemptions: The parent of a full-time student under age 24 can still claim a dependency exemption for the child by providing more than 50% of the child's support. Depending on the situation, it may make sense to add to the support total at year-end in order to clear the 50% mark.
Each dependency exemption for 2004 is $3,100.8. Wash sales: Under the wash sale rule, an investor cannot claim a tax loss if he or she buys back substantially identical securities within 30 days. To avoid this result, you can (a) wait at least 31 days to make the purchase or (b) buy replacement securities first and wait at least 31 days before selling the original shares. Note: This must be done more than 30 days before the end of the year to realize the loss in 2004.9. Hobby losses:
If you operate a sideline business, you can claim a tax loss for the year, but be careful.
If the activity is characterized as a hobby, not a business, your loss is deductible only up to the amount of your income from the activity. Since the IRS generally presumes the activity is a legitimate business if you have shown a profit in three out of five consecutive years, you might accelerate income into this year and defer deductions to next year.10. Income-shifting: You can reduce the overall family tax bill by shifting taxable income from your high tax bracket to other family members in lower tax brackets. For instance, you might transfer income-producing property to custodial accounts for your minor children.
Caution: Be aware of the "kiddie tax." To the extent that the unearned income a child under age 14 exceeds an annual limit ($1,600 for 2004), the excess is taxed at the top marginal tax rate of the child's parents.In summary: You may be able to use one or more of these techniques to reduce your 2004 tax bill.
However, tax planning cannot be done in a vacuum. If you have additional questions concerning your tax return, consult with a CPA.
To find a CPA, find one through NABA's Division of Firms, www.nabadof.org..
TaxACT?, America?s #1 Value Leader in Tax Preparation Software Products and Services, Soothes the Sting of Preparing Tax Returns
2nd Story Software?, Inc., developers of America's most trusted value-priced tax preparation software, announces the release of TaxACT? Standard and Deluxe Editions for the 2004 tax season.Simplify and Streamline!
TaxACT Deluxe Gets Recognized and Offers Improved Navigation, Expanded Advice and Additional Calculators Denoted recently by PC Magazine as having a "sleek and fast design", TaxACT 2004 Editions are designated as being the Editor's preferred choice for "finance-savvy" taxpayers.
TaxACT's 2004 Deluxe Edition continues to simplify tax preparation and provide its users with an exceptional experience by improving its link integration to expert tax advice and help features.
At the same time, TaxACT has expanded the number of its interactive calculators within the Life Events QnA process, which are provided in partnership with J.K Lasser's? Your Income Tax 2005 by John Wiley & Sons, Inc. ? America's all-time best-selling tax guide.
More than ever,...
Tax help > TaxACT?, America?s #1 Value Leader in Tax Preparation Software Products and Services, Soothes the Sting of Preparing Tax Returns
What is a Reverse Mortgage?
Simply stated, a reverse mortgage is a loan that enables homeowners (age 62 and older) to convert part of the equity in their home into a tax-free income without having to sell the home, give up the title, or take on a new monthly mortgage payment.
More and more homeowners are using this to supplement their retirement income, pay for health care, modify their home, or just get some cash for emergencies.
Since this is a new product, some people have misconceptions of what a reverse mortgage is.
The bank doesn't give you money and take your house.
Let's look at some of the most common questions.Are reverse mortgages for desperate people?
No.
It is an excellent financial planning tool used from people of all walks of life.
How do I qualify?
You must be 62 or if both parties are on the mortgage, then you both must be at least 62.
And, you must have equity in your home.What if I still owe on my home?
What is a Reverse Mortgage?
Tax help > What is a Reverse Mortgage?
State Favors Result in State Control of the Church
Persecution of Christians around the world is at an historic and all-time high. While there is great cause for concern for their plight, one thing we can be quite confident of is that the Christian religion will live on. Christianity has outlived every tyrannical regime, stretching from the Roman Empire, to the Soviet Union. It will also outlive the murderous Islamic regime of Sudan, and the totalitarian Communist tyranny of China.History has repeatedly shown that brutally attacking the Christian, whether through imprisonment, torture, or execution, has never served to undermine faith. Persecution only serves to strengthen the Christian faith.Every time in history, and in every culture, when Christianity has been assailed, the faith of its victims is bolstered, and the gospel then spreads like a wild fire.
A contemporary example of this is China, where perhaps the greatest expansion of the gospel in history is taking place, under the constant harassment of a brutal Communist regime.Modern...
State Favors Result in State Control of the Church
Tax help > State Favors Result in State Control of the Church
New Law Changes Highway Use Tax Rules: Installment Payment Option Eliminated
The IRS is reminding truckers and other owners of heavy highway vehicles that the installment option for paying the federal highway use tax will no longer be available. This change was included in the American Jobs Creation Act of 2004 and applies to filers of Form 2290, Heavy Highway Vehicle Use Tax Return.Beginning with the Form 2290 for the tax year that begins on July 1, 2005 and ends on June 30, 2006, the balance due shown on the form must be paid in full by the due date of the return. In most cases, the deadline for filing the return and paying any tax due is August 31, 2005. Payment can be made by check, money order or electronically through electric payment (EFTPS).In previous years, taxpayers who timely filed Form 2290 could choose to pay the tax in four equal installments. Ordinarily, these installment payments were due on the last day of August, December, March and June.
About 148,000 taxpayers chose this option last year in 2004.In general, the highway use tax applies...
New Law Changes Highway Use Tax Rules: Installment Payment Option Eliminated
Tax help > New Law Changes Highway Use Tax Rules: Installment Payment Option Eliminated
Legislation Requires All Tax Professionals to be Enrolled Under IRS Regulations
The State of Florida has no standards or laws regulating the conduct or standards of tax professionals. Anyone or his idiot-savant brother, may open up a tax office and receive compensation for preparing tax returns. In fact, according to Marvin Diamond
of Diamond Professional Tax Preparers in Kissimmee, Florida, people have done just that. Diamond complains of companies opening up for just a few weeks during tax season, taking people's money, then closing up and disappearing - while customers are left without even getting their tax returns.
Senator Jeff Bingham's legislation intends to stop those kinds of consumer problems - and worse ones.Once S.
832 passes, there will be thousands of tax professionals with long-term experience, excellent professional track records, but no credentials, who will be forced out of business. They won't be able to become CPAs or attorneys in time for next tax season. Both those professions tend to require college degrees, and intensive...
Legislation Requires All Tax Professionals to be Enrolled Under IRS Regulations
Tax help > Legislation Requires All Tax Professionals to be Enrolled Under IRS Regulations