‘Tis the season to cut taxes

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American Trucking Associations’ advanced seasonally adjusted Truck Tonnage Index fell 0.3 percent to 160.4 in July following a revised 0.8 percent increase in June. Year-to-date, truck tonnage is up 6.8 percent over the same 2003 period. “July’s truck tonnage data corresponds to an economy that has taken a breather this summer,” says ATA Chief Economist Bob Costello. “However, there are still plenty of reasons to believe that tonnage will continue to grow solidly for the remainder of the year.” Costello cited strength in the manufacturing sector, especially in capital goods. “While the economy is growing slightly slower than anticipated, increases in the tangible goods portion of the economy are good enough to expect solid, but probably more moderate, growth in truck freight.” The base year for the index is 1993.

U.S. Department of Transportation has shifted responsibility for the Motor Carrier Financial and Operating Statistics Program from the Bureau of Transportation Statistics to the Federal Motor Carrier Safety Administration, effective Sept. 29.

Illinois Gov. Rod Blagojevich has proposed raising Illinois Tollway fares, effective Jan. 1, for the first time since 1983 to pay for a 10-year, $5.3 billion overhaul of the 274-mile system. Under the plan, which the tollway board had planned to review Sept. 30, commercial vehicles will see a larger increase than cars based on number of axles but can obtain a congestion-pricing discount when driving between 10 p.m. and 5 a.m.

Why are we talking taxes in October? Because we all want to save on taxes, but often we don’t think much about it until March or April. By then, it’s really too late to do much good. For clients that wish it, my firm schedules pre-Thanksgiving meetings to review company and personal tax situations for the year. Wait until later and you’re too caught up in the holiday season. Having a strategy for yearend moves by mid-November gives you up to six weeks to take actions that could save thousands of dollars in the spring.

For your pre-yearend tax-planning meeting with your accountant, you need company financial statements, compared to the prior year and also spread on a monthly basis, and personal income information, such as year-to-date payroll stubs and information on other sources of income. Note any significant changes in your personal deductions, such as for medical, taxes and charitable contributions.

Your accountant’s first task is to project roughly the company’s full year first, then for you personally, and to compare it to the prior year. Any inconsistency should be reviewed for evidence of possible problems – or opportunities. After that, there are several key steps toward shaving big dollars off your tax bill.

Plan for the company’s yearend close. Pre-yearend planning is a time to review the proper valuation and recording of assets and liabilities. Scan receivables and write off any that are really worthless. Make sure inventories are not overvalued. Check the Equipment and Fixed Asset Lists for abandoned or worthless equipment and write them off. Review the payables to ensure that all are being recorded in the right periods.

Check equipment purchases year to date. If you have purchased less than $100,000 in equipment this year, check your spring purchase plans to see if any can be accelerated to this year. That way, you can maximize the “Section 179” and bonus depreciation deductions available for business assets.

Consider retirement plan contributions. For basic tax planning, there’s still no better deal than to put funds into your own accounts and take a full deduction for doing it. Save $10,000 into your retirement plan, and cut $3,500 off your tax bill. This means that your real out-of-pocket cost for doing this is only $6,500 – and you are $10,000 richer.

Evaluate special considerations for S corporations. The “tax basis issue” is really important for S corporations, especially if you have incurred losses this year. Consider the need to put cash into the company temporarily through shareholder loans (or with money borrowed in your personal name) to increase your tax basis for claiming losses. Likewise, watch out for surprises if you have refinanced any such loans from personal name to company name this past year.

Evaluate special considerations for C corporations. Companies organized as C corporations have their own special tax concerns, especially if profits are excellent for the year. You may wish to consider officer payroll bonuses or dividends for December payment.

Watch for rental property unused passive losses. Many business owners have real estate such as office buildings or terminals in their own LLCs or in their own name. If you are paying too little rent you may create “passive losses” that might not be deductible on personal returns. By increasing the rent for the year, you gain a deduction on your company’s return, and may not have any increase on personal returns – a real win-win proposition.

Consider smart investment moves. If you have a stock or bond portfolio outside of your company and not inside a retirement account, you have a range of possible tax moves to consider. Start with a request to your investment adviser for a year-to-date list of “realized” gains and losses and a statement of “unrealized” gains and losses on your present holdings. With your advisers, consider the need for November or December sales to minimize gains and absorb losses.

Review other steps for individual returns. Other possible moves involve accelerating or delaying payments or deductions. For example, by timing your Jan. 1 mortgage payment to arrive and be counted in December, you gain extra deductions for this year. Likewise, pay that state tax estimate scheduled for Jan. 15 before New Year’s Day.

“Year End Tax Planning”, courtesy of SmartMoney.com at this site.

“The Basics of Tax Planning,” courtesy of CCH Business Owner’s Toolkit, at this site.