How can I use the State and local sales tax deduction.

Despite being one of the more popular tax breaks, the deduction for state and local sales taxes is not permanent and is set to expire at the end of 2007. The American Jobs Creations Act of 2004 gave taxpayers who itemize deductions the option of claiming either state and local income taxes or state and local general sales taxes.

If you have been contemplating the purchase of a big-ticket item, such as a car or boat, you should consider making it sooner rather than later because the deduction for state and local general sales taxes expires at the end of 2007.

However, you first need to compute what any potential state and local income tax deductions will amount to and then compare it to your potential sales tax deduction.


Answer Provided by Andrew Taylor, CPA Haffley,Taylor& Company

How can I reduce my 2007 taxes _ Retirement planning

Year-end planning for 2007 also involves maximizing annual contributions to your retirement plan accounts, since one year's limit cannot be added to the next year's if not taken in time. While contributions to IRAs may be applied retroactively if made before the filing deadline, an individual's elective deferral contribution made as an employee to a qualified plan must be made before the end of the calendar year.

Maximizing contributions to your retirement plan (or plans) before year end also allows you to reduce your adjusted gross income in direct proportion to those contributions. This in turn can give you the benefit of increasing the deductibility of medical and other deductions subject to adjusted gross income floors.

It is also not too early to think about a Roth IRA conversion plan if your present adjusted gross income is too high under the usual conversion rules. Although the adjusted gross income limit is not lifted until 2010 for a one-year only conversion opportunity, certain year-end maneuvers now can better set you up for maximizing conversion benefits in 2010. For example, if leaving employment, you may want to consider rolling over 401(k) balances to an IRA rather than leaving it in the plans.

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

What is a corporation?

A corporation is a more complex business structure generally. It is a legal entity separate from its owners, called "shareholders," who own shares of stock in the company. For "regular" or C corporations (often used for large and publicly traded companies), profits are taxed both at the corporate level and again when distributed to shareholders. This is the tax disadvantage which is avoided by the "pass through" entities such as LLCs and S corporations.

Answer provided by Chuck Roach - Roach Law Office