LANDLINE
AUGUST/SEPTEMBER, 2006
ARTICLE0806LL
TAX PROJECTIONS & PLANNING
INCOME TAX PROJECTIONS
You need equipment and want to expand your business, buy a
home, add to retirement savings, or take some time off, but can you afford
to? In addition to knowing how much
available money you have, you will need to know the answers the following
questions: Will you owe money to the IRS
on
You need to know these answers now and not after your tax return for the year has been completed. You will need these answers to plan your finances for the next six months in order to alleviate any tax problems or to enable you to purchase new equipment, etc. Although it is a good idea to have your tax preparer review your financial records throughout the year, it is advisable to have a tax projection prepared based on your operations to date so that there is enough time before the end of the year to do proper tax and/or investment planning or to adjust your estimated taxes to minimize any potential penalties.
Your books and records should reflect at least six months’ operations to get a true picture of how the year is going. That can then be annualized to reflect a full years’ activity to use as a starting point for your tax projection and tax planning. TIP: Don’t overlook the dreaded Alternative Minimum Tax.
TAX PLANNING
Following is a list of some ideas for smart tax and financial planning. All, some, or none may apply to you.
1. One method high-bracket taxpayers have to shift income to a low-bracket taxpayer is
income splitting with children or aged parents.
2. There is little reason not to have an IRA.
3. Tax credits are available for investments in building or remodeling low-income
housing.
4. Municipal bonds and/or municipal bond funds earn tax-exempt interest.
5. Some advantages of owning your own business or having a profession include fringe
benefits, retirement plans, income shifting.
6. There are several reasons to owning your own home: Long-term inflation, economic
growth and population growth push real estate values up; most of the cost can be
financed and the interest is tax deductible, cutting interest cost by the taxpayer’s tax
rate; upon selling your residence, you may exclude up to $500,000 in gain from sale
of a principal residence ($250,000 for single taxpayers).
7. In addition to IRAs, participate in retirement plans sponsored by employers. The tax-
deferred compounding can provide growth to your savings for retirement.
8. Contributions to a Roth IRA are nondeductible. However, distributions, which
include earnings, are tax free when certain requirements are met.
9. Only taxpayers who work for nonprofit employers (schools, government, hospitals,
etc.) are eligible for tax sheltered annuities. TSAs are similar to 401Ks, except the
contribution limits are more liberal.
10. An investor in the stock market or mutual funds can enjoy tax-deferred growth in the
securities appreciation and a possible lower capital gains tax upon sale.
11. Universal life insurance combines pure life protection (term) with a cash value fund
that earns tax-free interest at current market rates as long as the policy remains in
force.
12. If you have U.S. Government Series EE bonds, interest income is subject to federal
income tax, but not to state or local income tax. Pay federal income tax annually as
interest accrues or defer federal income tax until liquidating the bonds. Interest on
bonds purchased in 1990 and later may be tax-free income when used for college
tuition and fees.
13. Variable life insurance combines the traditional tax-deferred savings functions of
life insurance with the growth potential of equities.
TAX TIP
Small-business owners usually are focused on running the business and don’t take time to think about what their business is worth. However, certain events in the life of a business and an owner require a valuation of the company. For public corporations, the stock market sets the price. For privately held businesses, the process is more complex. We will talk about this more in a future issue.
This article has been presented by PBS Tax & Bookkeeping Service, a company which has been providing income tax and bookkeeping services to the trucking industry for over a quarter century. Contributions to this article were made by Shasta May, Director Business Development for PBS. If you would like further information, please contact us at 800-697-5153. Visit our website at www.pbstax.com.
“Everyone’s financial
situation is different. This article
does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or
accounting professional”.