PUBLICATION CENTER

It’s not too late to take advantage of 2007 year-end tax breaks and savings that will make a big difference in 2008 and beyond.

By Gina Mascio, LexJet CFO

This time of year just keeps getting busier. And, if you’re a business owner, there is one very important item you need to add to your list of things to get done before the end of the year… Take some time to look closely at your financial picture so you can reap the benefits of tax savings in 2007 and beyond.

Here are some of the things you should consider:

• New Equipment Purchases: Business owners who purchase capital equipment for use in their business may be able to deduct the total cost of the equipment in a single tax year, rather than depreciating it over a number of years. For 2007, the IRS allows businesses to deduct up to $125,000 in new equipment purchases if they are placed in service on or before December 31 (Section 179 deduction). The property which qualifies for this deduction is tangible personal property used in the active conduct of your trade or business. It does not include buildings and their structural components or property held for investment. There are limitations that apply if your total capital expenditures exceed $500,000 for the year. Also, the total cost you can deduct is limited to your taxable income from the business.

Example: Equipment with a cost of $ 100,000 is purchased and placed in service before December 31, 2007.  Using Section 179 and assuming a 35% tax bracket, the net tax savings on the equipment is calculated as follows:

If you want to lease the equipment, you may still be able to take advantage of Section 179 provided that the lease is a capital lease. Examples of capital leases include $1 Buyout, 10% Purchase Upon Termination (PUT), and Security Deposit equals Buyout (SD=BO) leases.

• Inventory:  If your business maintains inventory, you should conduct a physical count at least once a year. 

• Accounting:  You should make sure your accounting records are accurate and complete before the end of the year.  This will give you a much better idea of where the year will end financially and enable you to do better, more accurate planning.

• Cash Basis Businesses:  If your business uses the cash method of accounting and you think you’ll be in the same or lower tax bracket next year, it would benefit you to defer taxable income and accelerate expenses into this year. You can do this by:

  • Deferring some of your billing until right at the end of the year. If you do this, you’ll be paid (and taxed) in 2008 instead of this year. Keep in mind, however, that you should never defer billings if that decreases your chances of collecting the money.

  • Issue checks to pay expenses before the end of this year. You can claim the deductions against your 2007 taxes even though the checks might not be cashed or deposited until 2008.

  • Use a credit card to pay for deductible business expenses. By doing this, you can deduct the expenses even though the credit card bills will not be paid until 2008. If you use a store-revolving charge account (such as Home Depot), this rule does not apply.

• Retirement Plans:  Establish a retirement plan before December 31. The deduction is allowed on this year’s tax return as long as the plan is funded before you file your 2007 tax return.

• Estimated Taxes: Review your estimated taxable income for this year and make sure you have enough paid in estimated taxes to avoid any penalties. This will also help you avoid any unpleasant surprises when you file your tax return.

Consider tax and financial planning as an integral part of your business process every year. You should consult your tax advisor to determine which of these tax planning tips can provide the best benefit for you and your business.