Trim your taxes with these profitable year-end strategies.
Don't let this year slip away without taking a serious look at your tax situation. Whether you use the services of an accountant or not, it's important to review where you stand taxwise before December 31. Tax experts say the final few months of the year are an excellent time to zero in on effective strategies to lessen the annual tax bite.
Now is the time to go through your financial statements, 2000 tax information, and review your business and tax plans for the next year, says Laura Nowicki, a partner with the middle-market advisory services of PricewaterhouseCoopers in Houston.
Accountant Thomas Ochsenschlager agrees: "Getting an idea of your tax situation now can be key to adopting strategies that will help lower your tax bill for this year and beyond." Ochsenschlager is a partner with accounting firm Grant Thornton in Tysons Corner, Va.
There are a host of legitimate federal deductions and deferrals out there--it's up to you to take advantage of them.
Here are some tax planning strategies designed to make the federal tax laws work for you:
Look for ways to boost deductions. The larger the number of legitimate deductions you are able to claim, the smaller your taxable income will be and the less taxes you will owe the federal government. The best way to boost deductions for cash-basis business owners is to pay as many business expenses as possible this year.
With the cash method of accounting, income is taxable when you receive it, and expenses are deductible when they are paid. Under a new revenue ruling, businesses with average gross receipts of less than $1 million for the last three years can use the cash method even if they have inventory. This is especially beneficial for startups, says Ochsenschlager, because the cash method is less costly and simpler than the accrual method and it's much easier to control your income and deductions.
One good way to add deductions is to purchase needed equipment before the end of the year. Under the federal expensing provision, you can deduct the full cost of your equipment purchase rather than depreciating it over a number of years. The amount you can deduct for qualifying equipment in 2000 is $20,000--up from $19,000 in 1999. The allowable amount is scheduled to increase in stages to $25,000 by 2003. This is only available for smaller businesses. The $20,000 is reduced for every $1 of new equipment in excess of $20,000.
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