How can I reduce my 2007 taxes? Deduction management

Essential end of the year tax planning requires determining whether you will take the standard deduction or whether you will itemize your deductions. Consider "bunching" deductible expenses into one or the other year depending upon whether the standard deduction may be taken in one year or whether the adjusted gross income limits for medical (7.5 percent) or miscellaneous itemized deductions (2 percent) may be more easily met.

Even if you know you will itemize deductions, accelerating or deferring them is often a question of determining your probable tax bracket for year end and the next year to maximize their after tax value. Sometimes planning is as simple as paying your state estimated tax or real estate taxes in one year or the other; at other times, it's a question of making certain you gather the right proof and follow the proper steps in time to be entitled to a deduction in one year or the other.

Answer Provided By Andrew Taylor, CPA - Haffley, Taylor & Company

How can I reduce my 2007 income tax? Income shifting

One of the most fundamental year-end tax planning techniques involves accelerating deductible expenses in 2007 and deferring income, if economically feasible, into 2008. By delaying taxable income you defer taxes. Delaying taxable income may also prevent you from losing lucrative tax breaks that can be reduced or eliminated altogether as your income level rises and propels you into a higher tax bracket.

With only a month left until the end of the year, you can probably anticipate with reasonable certainty what income and deductions you will be reporting on your 2007 tax return. You may also be able to predict with relative accuracy what your income and expenses for the first few months of 2008 will include. The ability to gauge your income and expenses for 2007 and into 2008 provides a golden opportunity to shift income or expenses into one year or the other, depending on what will enable you to save the most overall taxes.

Shifting income, however, is not always a matter of simply delaying receipt of funds. Tax rules may require you to recognize certain types of income when you have earned to right to receive it, even if you arrange for its delayed payment.

Answer provided by Andrew Taylor, CPA - Haffley, Taylor & Company, LLC

How do I know if I should classify workers as contractors or employees?

The IRS has been really looking closely into this issue in recent years. There are very specific guidelines for classification. The IRS published a classification guide called the 20 Factor Test.

Basically, the issues resolve around control. Who controls the workers behavior? In other words, are there set hours? Who controls how the work is performed? Is there specific instructions and training? Second, who controls the finances? Does the worker provide a bill for services? Who is responsible for related business expenses? Can the worker work for other employers? Is the worker trying to make a profit? How is the worker paid?

Finally, How do the parties perceive their relationship? Is there a contract? Who controls the number of hours? Are any benefits provided to the worker? What is the term of the relationship?

Answer provided by: Len Titone – Next Level Financial Management

Can I pay myself a salary if I own a LLC or a partnership?

No. Partners in a partnership receive their income from the profits of the organization. The profits are taxed to each partner via K-1 form. A partner can received a “Guaranteed Payment”. A Guaranteed Payment is a payment made to a partner for services or for the use of money. The payment is paid regardless of partnership profits, and is not subject to income tax.

Answer provided by: Len Titone – Next Level Financial Management