Tax and Financial News - End of the Year Deals
The holiday season is upon us and 2010 is just around the corner. With everything else on your plate, we have to remind you that the tax year is coming to a close - that is our job. Here are a few last-minute tips to help you reduce your tax bill.
In the market for a new car?
In case you missed the Cash for Clunkers deals earlier this year, you are not totally out of luck. Until Dec. 31, you can still get a tax break for purchasing a new vehicle. Buying a new vehicle after Feb. 16, 2009, and before Jan. 1, 2010, affords you the opportunity to deduct the sales tax on as much as $49,500 of the cost. Eligibility for the deduction phases out at $125,000 of adjusted gross income for singles and $250,000 for individuals who are married or filing jointly. You do not have to itemize deductions to take advantage of this break.
And please note that you are not limited to a total of $49,500 for all purchases; rather, the limit applies to each vehicle you buy. For instance, if you buy two vehicles at $35,000 each, you get the sales tax break for the full amount on each vehicle. Those who live in states with either low or no sales tax are not out of luck. The law also applies to excise taxes and fees based on the sales price of the car. If you're in the market to purchase a new car, do it before Dec. 31.
Loss on 401(k) corrective distributions
If you received a corrective distribution from a 401(k) plan, remember to take into account any losses in your year-end planning. Many who made contributions in 2008 bought into the market before the late-year crash. When they received their 2008 corrective distributions, they received less than they paid in. If you are one of these lucky ducks, your 1099-R will show the full amount of your deferral, which you must report in income. To claim a loss for the difference between your deferral and what you actually received, you can include the loss on line 21 of your 2009 Form 1040.
Documentation requirements
Don't forget that the Internal Revenue Service requires you to support many deductions with contemporaneous documentation. Basically, this means you need to keep a log of certain things, such as business mileage. While it is certainly appropriate to deduct expenses related to business use of your personal vehicle, the Internal Revenue Service requires you to maintain a log of that use. Make sure you capture beginning and ending mileage each time you make a business trip. Equally as important, make sure you take a few minutes on Jan. 1, 2010, to write down the ending mileage on your vehicles. This will help in supporting any mileage deductions for 2009 and serve as your beginning point for 2010 deductions. Remember to keep in mind the mileage deduction for medical purposes. Additionally, keep track of business expenses and out-of-pocket costs for charitable trips. Expenses in connection with travel for charitable organizations (board meetings, retreats, etc.) could also be deductible as donations, so keep a record of them as well.
If you plan to purchase a heavy truck for the Internal Revenue Code Section 179 deduction before Dec. 31, contemporaneous records are critical. You will, upon audit, be required to prove that you used the vehicle for business use more than 50 percent of the time. Records are essential in proving that usage.
Last but not least
As a final reminder, do not forget to make any deductible payments before the end of the year. Be sure you date any charitable contributions, mortgage payments, state tax payments and other deductible items on or before Dec. 31 - and be sure to put the check in the mail. If you can't cut the check, don't forget plastic. While being careful not to place more of a debt burden on yourself than you can handle, credit card payments are considered equal to check payments for the purpose of deductions.
Happy holidays
The holidays are not just a time of good cheer. This is also a time to exercise good sense to position yourself for a great 2010. Give us a call in early December so we can make plans to help you take advantage of last-minute tax deals before the New Year.
General Business News - Have a Happier New Year
Happy New Year - almost! With the way 2009 began, our main job may have been simply to survive until the end of this year. Though we've nearly made it now, there is still time to make 2010 a little easier. Here are a few tips.
Don't carry...
...too much baggage into the New Year. In this case, we really mean inventory. If your business needs inventory to survive, then by all means make sure you have sufficient goods on hand to meet those needs - but don't overdo it.
Many states use your year-end balance sheet to determine the taxable value of your assets for property tax purposes. If your fiscal year ends on Dec. 31, use this month to whittle down the amount of inventory you carry. You can do this through sales or by removing obsolete or excess inventory this year.
Discarding inventory has added benefits. Years ago, Congress decided that you could not write off or write down inventory that is still salable - even if you had 100 years of stock on hand. Many people have been carrying inventory of little value to them at its full cost because of these rules. If you won't be able to sell the stock in the foreseeable future, consider unloading it to get the tax deduction. Just remember that the inventory has to be gone by year-end.
Make sure...
...all of your computer programs are up to date going into 2010. Many programs require updates before they can be fully utilized for the New Year. An important consideration is the annual tax table maintenance for payroll. If you do your own payroll, review the requirements for updating the tax tables. Remember that in many cases you must first run your W-2s and close 2009's records before updating your 2010 programs.
Take time...
...to plan the year ahead. Nobody can predict the future, but you can certainly prepare a budget for 2010. A good budget will help you get ready for the coming year, including determining staffing needs and production/inventory purchase levels. This budget will serve as a roadmap to success in 2010, so don't neglect this important step in shaping your company's future.
Talk to...
....your tax and financial advisors. You might have planned out the rest of your year from a tax and financial perspective, but tax law and financial strategies are dynamic and change constantly. Give yourself every chance at a Happy New Year by taking one last look at your tax and financial picture. Make sure any plans not yet completed are still valid in light of current law and give your advisors a call - that's what we're here for. Let us help make your 2010 a truly Happy New Year.
Tip: New tax break option for business losses
The Worker, Homeownership and Business Assistance Act, signed into law in early November 2009, gives a valuable tax break to businesses that have incurred net operating losses in 2009. Under the general rule, a business owner is permitted to carry back a NOL for two years and deduct it against taxable income for those two years. The new November 2009 provision extends the time period and allows business owners to carry back a NOL for three, four and even five years. Given the current credit crunch and the tough economic climate, this new provision creates a valuable tax break for many business owners.
The November law (which is not restricted to small business only) can be layered on top of the February Stimulus Act tax break, which allowed owners of small businesses to carry back their net operating loss for 2008 for three, four or five years (instead of the two-year time frame previously allowed). Unlike the recent November measures, the Stimulus Act benefited only smaller businesses with gross annual receipts of $15 million or less. The act allowed a business owner to carry back a 2008 NOL as many as five years to recover some of the federal income taxes paid in the 2003 filing. If the business owner still had a portion of the NOL remaining, it could be applied against 2004, 2005 and so on until the NOL was used. If after these five-year carry backs a business owner had still more 2008 NOL, it could be carried forward for 20 years.
The new November legislation has done away with the $15 million average annual gross receipts cap, and in doing so offers larger enterprises the option of extended NOL carry backs.
If you were one of the smaller businesses that qualified and took advantage of the February Stimulus Act to carry back a 2008 NOL more than two years, you might still be able to take advantage of the new measures. The legislation permits small businesses in this category to do the same thing again for a 2009 NOL. However, if a business owner has already taken advantage of the extended carry back provisions for a 2008 NOL, any 2009 NOL carried back to the fifth preceding year can only be used to offset 50 percent of that year's income.
The option of an additional NOL tax offset can create some confusing options for small business owners. Whether you took advantage of the Stimulus Act earlier or you are considering extended carry backs for a 2009 NOL for the first time, it is important to discuss your specific situation with your tax professional. You could wait until the due date of your 2009 tax return to make a decision; however, deciding now allow you to plan the most advantageous tax strategy as well as a capital spending plan for 2009 and subsequent years. Prompt action and a consultation with your tax professional before the holidays make good sense.
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