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
Showing posts with label taxes. Show all posts
Showing posts with label taxes. Show all posts
Monday, December 10, 2007
How can I reduce my 2007 taxes - Gift-giving
Take advantage of the 2007 annual and lifetime gift-giving limits to reduce your income and estate tax liabilities. For 2007 and then again in 2008, you can transfer $12,000 per person, per year, without paying gift tax on the amounts transferred.
Married couples can gift $24,000 per person, per year without tax liability on the amounts transferred. That strategy not only avoids the possibility of paying a hefty estate tax later, but it removes earnings from those gifts from your taxable income bracket into that of the lower-bracket gift recipient.
Answer Provided By Andrew Taylor, CPA - Haffley, Taylor & Company
Married couples can gift $24,000 per person, per year without tax liability on the amounts transferred. That strategy not only avoids the possibility of paying a hefty estate tax later, but it removes earnings from those gifts from your taxable income bracket into that of the lower-bracket gift recipient.
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
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
How can I reduce my 2007 taxes - Portfolio timing
The end of the year is an ideal time to examine your investments (winners and losers over the course of the year) to take the steps necessary to minimize your capital gains income and maximize the benefit of any capital losses. Long-term capital losses can be used to fully offset long-term capital gains. Losses taken in excess of gains can also be used to offset up to $3,000 in ordinary income (or $1,500 for a married couple filing separately). The strategy for short-term gains and losses follows a similar game plan, although coordinating the two sometimes takes special care.
Starting in 2008, traditional strategies in connection with capital gains and losses also need to accommodate a special, nontraditional opportunity -- the zero percent net capital gain rate for tax years 2008 through 2010. While this zero rate is only available for individuals in the 10 or 15 percent income tax brackets, it is well worth families, retirees, and others to manage their income tax brackets starting in 2008. That management starts at year-end 2007, as does the decision over whether to postpone a sale of a capital asset until January 2008 to take advantage of this favorable, zero rate.
Answer Provided By Andrew Taylor, CPA Haffley, Taylor & Company
Starting in 2008, traditional strategies in connection with capital gains and losses also need to accommodate a special, nontraditional opportunity -- the zero percent net capital gain rate for tax years 2008 through 2010. While this zero rate is only available for individuals in the 10 or 15 percent income tax brackets, it is well worth families, retirees, and others to manage their income tax brackets starting in 2008. That management starts at year-end 2007, as does the decision over whether to postpone a sale of a capital asset until January 2008 to take advantage of this favorable, zero rate.
Answer Provided By Andrew Taylor, CPA Haffley, Taylor & Company
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
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
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
Wednesday, December 5, 2007
How is the LLC treated for tax purposes?
The LLC enjoys the same "flow-through" tax treatment that partnerships and S-Corporations do. The rules concerning capital accounts, contributions and other basic partnership taxation principles apply to LLCs as well. In short, this means that although the LLC must file a tax return, the LLC owners report income and pay the taxes owed on such income using their personal returns.
The LLC itself does not pay taxes on its income. (Currently, the IRS has not developed a separate tax return form for LLC, so the same form used for partnerships is used, Form 1065). The owners will each file a Schedule K-1 with their personal income tax return, which will show their "share" of the LLC income. While this structure avoids the double taxation dilemma of the C-corporation, an LLC (like the partnerships and an S-corporation) cannot retain earnings without the owners of the business having to pay income taxes on those earnings anyway.
One of the very best features of the LLC is the fact that the owners can divide up the ownership interests differently from the rights to distribution of profits (and losses). For example, an individual goes into business with another person, and both wish to own 50% of the business. However, one individual is going to work for the LLC full-time while the other wishes to keep another full-time job and work for the business part-time. Each may still own 50%of the ownership while dividing the profits interests into a 75%-25% split or some other ratio, to reflect the different levels of effort.
Answer provided by Chuck Roach - Roach Law Office
The LLC itself does not pay taxes on its income. (Currently, the IRS has not developed a separate tax return form for LLC, so the same form used for partnerships is used, Form 1065). The owners will each file a Schedule K-1 with their personal income tax return, which will show their "share" of the LLC income. While this structure avoids the double taxation dilemma of the C-corporation, an LLC (like the partnerships and an S-corporation) cannot retain earnings without the owners of the business having to pay income taxes on those earnings anyway.
One of the very best features of the LLC is the fact that the owners can divide up the ownership interests differently from the rights to distribution of profits (and losses). For example, an individual goes into business with another person, and both wish to own 50% of the business. However, one individual is going to work for the LLC full-time while the other wishes to keep another full-time job and work for the business part-time. Each may still own 50%of the ownership while dividing the profits interests into a 75%-25% split or some other ratio, to reflect the different levels of effort.
Answer provided by Chuck Roach - Roach Law Office
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