Last Minute Tax Strategies

by | December 20, 2005

Here’s some interesting last minute tax advice from a November article in Entrepreneur Magazine to capitalize on some of the tax incentives expiring on December 31 and those coming into effect in 2006. If you fall into the Alternative Minimum Tax (AMT) category, you may not want to accelerate the payment of certain taxes that you may have previously accelerated to obtain a deduction for this year. With the AMT, there’s no longer a benefit. If not, then pay your estimated taxes and make any charitable contributions and possibly invest in your operating expenses in 2005, rather than 2006, to obtain the deductions. Also remember that deferring income into 2006 for year end bonuses and the like does not help your tax situation if your company is a “flow-through” entity such as a partnership, S-Corp or LLC. Finally look at the tax breaks that expire on December 31 such as the ability to expense off-the-shelf software immediately and amortize it over 3-5 years or the ability to write-off the first $25,000 of first-year depreciation for an SUV (or other vehicle weighing over 6000 lbs.) for business purposes. In addition, charitable contributions of food or textbooks to public schools have no deduction limitation and the deduction is twice the cost of the gift as long as fair market value is greater than that. Finally, if your company is a corporation subject to “double taxation,” consider why and whether now is the time to adjust the structure.

Please note, I am not providing tax advice here but simply summarizing an interesting article which you can read in full at Entrepreneur.com and before acting on any tax-related issues, you should contact your tax professional.

Author: Michelle Bomberger, King County Business Attorney