Tax Filing Season is here, and there are still several things people can do to reduce their taxes for 2008. Here are Seven Tax Tips that can possibly save people a lot of money on your 2008 taxes:
1. For businesses on the cash accounting system (most small businesses), expenses are usually deducted the year paid. However, if the company charges any business expenses to their bank credit card (VISA, MasterCard, American Express or Discover) they can deduct those expenses the year incurred even though they pay them in the next year. Go through December charges and add them to December expenses.
2. Normally, the cost of inventory (goods for sale, parts) cannot be written off until sold. But if companies have any damaged inventory, inventory that is out of date or out of fashion, goods unsalable for any reason, they can write off this inventory for 2008.
3. Business expenses are deductible even if paid from your non-business bank accounts, personal credit cards or debit cards, or with cash. Take a few minutes and go through all of the expenses for the year. If the expenses were for the business, deduct them. (Does not apply to corporations).
4. Many domestic businesses that produce, create or contract for goods are eligible for a 6% “manufacturer’s deduction.” The term “manufacturer” is broad, and many non-manufacturing businesses are eligible. Some construction, engineering and architecture firms, software developers, and video producers are also eligible. This “bonus” deduction is in addition to the deductions already allowed for manufacturing and production expenses.
5. In addition to deductible business expenses, people may qualify for special “Tax Credits” available to businesses. Tax credits are very specific and limited, but if a person qualifies, the credits reduce taxes dollar for dollar. Tax credits can be a real tax pot-of-gold.
6. People can put some of their business profit into an IRA or a SEP-IRA retirement account, and not pay income taxes on the profit until they withdraw the money in a future year. People have until April 15, 2009 to set up and contribute to an IRA or a SEP-IRA for the 2008 tax year. They can figure their 2008 income and taxes, and then decide if they want to shelter some of it in a retirement plan.
7. Finally, and one almost sure way to reduce taxes, is to re-examine every purchase, every expense made in 2008. People should make sure they've taken all the business tax deductions they are entitled to: expenses they didn’t record in ledgers, expenses they didn’t think were deductible, “personal” expenses that qualify as business expenses. The IRS is not going to tell people about a deduction they failed to take. It's entirely up to the individual. The tax savings can be tremendous.
These “Seven Tax Tips” are excepted from the new 8th Edition of 422 Tax Deductions for Businesses and Self Employed Individuals, by Bernard B. Kamoroff, C.P.A. ($18.95, Bell Springs Publishing, www.bellsprings.com, 800-515-8050). The tax tips are summaries of the current tax laws; read the full details before relying on the information.