Tax Planning TechniquesWilliam Piner
February 17, 2009 — 1,630 views
Many more of you find yourselves in this predicament. What can you do? Who can you call? Well, those dashingly handsome financial super heroes are here to serve. If you are using un-reimbursed employee business expenses on your itemized deduction schedule, get reimbursed. These expenses will cause the alternative minimum tax (amt) to rear its evil head. If you use your car for business, get your boss to reimburse you for these expenses as opposed to getting a bonus or commission payment. This will keep income out of your W-2 and helps to circumvent amt. This is good for employees and employers as the reimbursement of expenses follows the "accountable plan rules" issued by Internal Revenue. Following this simple technique will save everyone money. List your employee business expenses, including mileage at 50.5 cent for the first half of 2008, and 58.5 cents for the second half, and get your employer to reimburse in lieu of a paycheck. You get the money tax free, and your employer avoids payroll tax. Keep in mind that your employer might not want to reimburse for meals and entertainment as they are a limited to being 50% deductible for income tax purposes.
Real estate taxes and state income tax deducted on your "schedule A" will also help to create an amt situation. Consider making any state estimated payments in January as opposed to making them in December. In addition, you might also be able to pay part of your real estate taxes in January.
If you are typically deep in the alternative minimum tax, you might just have to embrace the concept. The marginal brackets are 26% and 28% respectively for amt which means you are not deep into the 35% regular bracket. In fact, it might make sense to accelerate income into 2008 to maximize the amt brackets. Remember, there's a new administration in town in 2009 and all bets are off.
To Roth, Or Not To Roth
With the stock market down as much as it is, there might be opportunity for converting a traditional IRA to a Roth. This can only be done if adjusted gross income is $100,000 or less (not including the conversion of the IRA). Converting a traditional IRA to a Roth is a taxable event in the year of conversion. Because many IRA balances are down in value, this might be the time to make the conversion and minimize exposure to income tax. The idea in doing this is to pay tax now (or not at all if your income from other sources is significantly reduced) to avoid paying it at retirement age. This could be an important estate planning tool. Think about this carefully.
Buying a Home
If you are a first time homebuyer, it might make sense to arrange settlement to occur in 2009. Why is this you ask? There might be points (remember, seller paid points are also deductible by the buyer) or real estate taxes paid at settlement that will offer little or no tax benefit in 2008.This might be due to the fact that the new homeowner or homeowners will not have enough deductions to itemize deductions on federal form "Schedule A". For taxpayers with adjusted gross income of $100,000 or less, mortgage insurance is treated as qualified mortgage interest for deduction purposes. This deduction phases out at a rate of 10% for each increment of $1,000 over $100,000.
Other Things to Remember
The section 179 limit for 2008 is at a one time level of $250,000. If you are starting a new business, this means that a deduction of $250,000 can be taken for depreciation in year one providing there is income from business sources. This business source income includes W-2 forms from both husband and wife.
There is also bonus depreciation for 2008 for 50% of qualified property. If the business is already in a loss position and ineligible for the section 179 deduction, this 50% could expand a net operating loss that would be eligible for carry back purposes.
It's not too late to form a retirement for your business allowing as much as $46,000 to be contributed and deducted ($51,000 if one has reached the age of 50 or more). A qualified SEP plan can be funded by the due date of the return which is April 15th plus extensions.
Please, for goodness sakes do what I tell you. You are free to do whatever you wish, but my way is better.
About the Author
William (Ron) Piner, CPA Host of "Better Business" Saturday mornings at 10ET On WBIS AM 1190 http://www.wbis1190.com