EDITOR'S NOTE: The local Fiducial office is located at 1370 Avenue of the Americas, New York, NY, Tel: (212) 207-4700)

This article and future articles are well researched, checked for accuracy, and written only by professionals in the small business, tax and financial industries to cover topics of general interest to readers in these areas.

We welcome any comments you may have and will quickly respond to your questions about these or any other small business, tax or financial related matters.

Taking Advantage of Last Minute Tax Benefits

The Thanksgiving turkey may not yet be in the oven, but that doesn't mean you can't start thinking about end of year tax preparation. Like the ingredients for your perfect holiday meal, tax materials have a special mix of components to keep Uncle Sam's tax collectors at bay. Thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001, you may be able to save additional cash when paying your 2005 taxes. It's not too late to take advantage of these last minute tax benefits:

1) Retirement - Make additional deferrals to your retirement accounts. While this may not seem like a news flash, it is one of the best ways to both save for your golden years as well as receive a tax break for your 2005 taxes. For qualified retirement plans (401(k) and 403(b)) there's some good news. If you're 50 or older, you're entitled to a $4,000 catch-up provision that allows a total deferral of $4,500 per individual in 2005. Other deferral changes include:

Under 50 years of age: Deferral Limit for 2005 is $14,000
Under 50 years of age: Deferral Limit for 2006 is $15,000
Over 50 years of age: Deferral Limit for 2005 is $18,000
Over 50 years of age: Deferral Limit for 2006 is $20,000

2) College saving & continuing education - With 529 college savings plans, as of 2002 withdrawals for college-related expenses are tax-free. With a Coverdell Education Savings Account, the contribution has been increased from $500 to $2,000 annually.

3) Plan your tax payments - Why let Uncle Sam keep your money interest-free until April 15, 2006 or later? Review your tax payments and future expected earnings and keep your money longer. Adjust your withholdings to meet these targets. If you expect to pay next year, put the withholding difference in a money market account. At least then, you'll be picking up any interest.

4) Travel deduction - Effective September 1, 2005, the deduction for travel and gasoline has been raised to $.485/mile for business-related travel, $.08 higher than this year's allocation due to increased fuel prices post-hurricane Katrina and Rita.

5) Child Tax Credit - the maximum per child tax credit for years 2005-2008 will be 1,000 per child.

6) New deduction for domestic producers - The new law creates a new 9% federal income tax deduction for "domestic production activities." The write-off will be phased in between 2005 and 2010 according to the following schedule: 3% for tax years beginning 2005 and 2006, 6% for years beginning in 2007 through 2009, and the full 9 for years beginning 2010 and beyond. This assumes the taxpayer pays the maximum 35% federal rate (9% deduction x 35% tax rate - 3.15% effective rate cut).

The new deduction is not limited to C corporations even through the write-off is often described in the media as a tax treat. The break is available to sole proprietors, S corporations, partnerships, LLCs, cooperatives, estates, and trusts that conduct qualified domestic production activities including:

- Traditional manufacturing of tangible personal property in the U.S.
- Many U.S. construction projects
- Civil engineering and architectural services for many U.S. construction projects
- Production of electricity, gas, and portable water in the U.S.
- Growing of agricultural products and food in the U.S. (i.e., domestic farming)
- Software production in the U.S.
- Most film and videotape production, renting and licensing activities in the U.S.

7) Pay bills early - Services such as internet, cell phone, subscriptions and some utilities are the easiest to pre-pay or pay before their due date.

8) Miscellaneous Expenses - The caveat is that you can only deduct those miscellaneous expenses if they exceed the 2% of your gross adjusted income. If you won't exceed the minimum floor, then consider deferring those payments into 2006.

Remember that taxes need not be '"taxing" and stressful if you spend a little time properly planning. In between the stuffing and the pumpkin pie, take a little time to consider your options. If you decide you need assistance, call a Fiducial representative at 888-FIDUCIAL or visit our website at www.fiducial.com.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transactions or matter addresses therein.

Copyrighted 1999-2008 All Rights Reserved
  Privacy Policy    Terms of Use   Most Recent Traffic Information

This page last modified: 28 Mar 2008