Cutting taxes paid to Uncle Sam a good New Year's idea

My dear departed mother was big on New Year's resolutions when I was growing up. Her long list of tasks for me included doing more chores around the house, completing my homework on time and, most importantly, resolving to be a good boy.

But when I grew up and started my own business, my year-end priorities changed to implementing more strategies aimed at increasing revenues and legally paying less income tax.

Even though 2006 is history, there are few things that you can start doing now to put more money in your pocket by paying less tax next year. "There is nothing sinister in so arranging one's affairs as to keep taxes as low as possible," said the late Judge Learned Hand, who is often quoted on his tax opinions. Furthermore, he said that the taxpayer "is not bound to choose that pattern which will best pay the Treasury."

One way to pay the Treasury less is to defer payments to the future, when presumably you will be in a lower tax bracket. That is what retirement plans do. In my company we created a defined benefit plan because it allowed us to defer the greatest amount of profit.

"A defined benefit plan may be the most complicated and expensive way to create a retirement savings plan," says Thomas Ochsenschlager, vice president of the American Institute of Certified Public Accountants. "Although much more can be contributed to such a plan than with the more commonly used defined contribution plans like 401(k)s, SEPs and SIMPLES."

He added that a retirement planning professional could help you choose the one that's best for you.

Ochsenschlager's comments are from an online chat he conducted called "Year-End Tax Planning for Small Business Owners." You can see all the questions and answers at app1.sba.gov/liveMeeting/liveDec06/intro.cfm.

In addition to deferring tax payments, there are other moves you can make to pay less to Uncle Sam. They typically take the form of tax credits and deductions.

Deductions are expensed to reduce your taxable profit. For example, you can deduct up to $108,000 for the 2006 tax year for equipment you bought last year, according to Allen Douglas, Florida's director of the Federation of Independent Businesses.

If you bought a hybrid car in 2006, you may be eligible for tax credits up to $3,400. Tax credits are worth more to you than deductions because they are subtracted from bottom-line profit.

There are a host of other business and personal tax credits and deductions you can take to put more bucks in your pocket. For instance, there are energy-related, tax-savings initiatives, and you can see them online at www.energytaxincentives.org.

The most comprehensive information is from the Internal Revenue Service. Business owners can call them toll-free at (800) 829-4933. Individual taxpayers can ask questions at (800) 829-1040. Its Web site is www.irs.gov. For links to other informative sites, check out www.taxsites.com.

In the end, it is advisable to contact a tax professional for a less taxing and happier New Year.

Jerry Chautin is the SBA's Small-Business Journalist of the Year." He is a local volunteer business counselor with Manasota SCORE, offering free business advice. Contact Jerry with your business questions and stories by e-mail at jkchautin@aol.com. SCORE's phone number is 955-1029 and its Web site is www.score-suncoast.org.

Other Usefull Tax Articles

Most Viewed Articles