1.  Year-End Tax Planning for Small Businesses

 

Now is the time of year to start getting ready for year-end tax planning and getting your records organized.  The following is a list of specific year-end tax planning moves useful to small businesses.

 

Equipment Purchases

Many business owners face the decision of whether to make equipment purchases in the current year or delay them until another tax year.  The bad news is that bonus depreciation rates that have been available in recent years expired last year.  However, the Section 179 deduction for capital purchases that would otherwise have to be depreciated stands at $105,000 for 2005 (rising to $108,000 in 2006 after inflation adjustment).

 

New Manufacturing Deduction

There is a Code Section 199 domestic production activities deduction that applies to manufacturers and many businesses not normally considered to be in manufacturing.  This deduction amount to three percent of either taxable income derived from a qualified production activity or all taxable income, whichever is less, but limited to 50 percent of the W-2 wages paid during the calendar year.  The amount of the deduction will gradually increase, reaching nine percent of qualified production activity income by 2010.

 

Energy Act Opportunities

The Energy Tax Incentives Act of 2005 provides tax credits for builders of new energy-efficient homes sold or acquired in 2006 and 2007 and for installation of fuel-cell power plants.  There is also a deduction available for the cost of energy-saving improvements to commercial buildings. 

 

Business Vehicles

Business owners should be aware of several changes that may affect their decisions in using vehicles for business purposes.  To counter the effects of rising gasoline prices, the IRS increased the standard mileage rate for business use of vehicles to $0.485 per mile, effective from September 1 to December 31, 2005.  The standard mileage rate for business use prior to September 1 is $0.405 per mile, and owners must not have taken depreciation on the vehicle at any time.  The IRS stated that it will delay the announcement of the standard mileage rate for 2006 until December to better gauge the direction in which prices are moving.  The rate is expected to be less than $0.485 per mile. 

 

Hybrid Vehicles

Business owners may receive additional breaks for purchasing hybrid vehicles.  The energy bill changes the deduction for purchase of such vehicles to a tax credit, worth roughly $2,000, depending on the vehicle's fuel efficiency.  The new law also provides a credit for the purchase of fuel cell cars and light trucks that can be worth as much as $12,000.  The new credits apply to vehicles first placed in service after December 31, 2005.

 

Employee Benefits

Establishing employee benefit plans, qualified retirement plans and medical or health reimbursement plans can provide tax savings to both employees and the business.  Congress has made a variety of alternatives available to employers and their employees in both areas, and the IRS and Treasury have followed with significant regulatory activity to clarify and expand on these provisions.

 

Roth 401(k)s

Beginning in 2006, employers who offer 401(k) plans for employee retirement savings will now have the opportunity to offer the so-called "Roth 401(k)".  This plan allows employees to elect to make contributions to 401(k) plans on an after-tax basis and receive qualified distributions tax free, just as they would with Roth IRAs.  The advantages to this plan are that there are no income limitations as with Roth IRAs and that they can contribute up to $15,000 annually ($20,000 for employees over age 50).

 

Medical Savings Plans

Several changes have been made to the rules governing medical savings plans as well.  New enrollments for Archer Medical Savings Accounts will no longer be accepted but Health Savings Accounts (HSAs), plans that allow employees and their employers to contribute to tax-free income-producing accounts when the employee has coverage under a High Deductible Health Plan (HDHP) only, are gaining in popularity. 

 

Also, the IRS and Treasury have announced the implementation of a 2 1/2 month grace period for Flexible Spending Accounts (FSAs) for medical and dependent care.  This grace period allows employees until March 15 after the calendar year for which contributions have been made to use up those contributions.

 

Hurricane Relief

In response to the devastation caused by Hurricane Katrina, Congress created several temporary tax benefits available to business outside the affected area.  The Katrina Emergency Tax Relief Act makes the charitable contribution deduction for food inventory available to all business entities and enhances the book donation deduction for C corps.

 

If you would like further assistance on your year-end tax planning, please contact us at our office.

 

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2.  Focus on Fraud:  Corporate & Identity Theft, Part 5 - Notes

 

Identity Theft: Effects on Victims

 

Effects on persons -

 

Made aware by ---   

 

-Contacted by collections department re delinquent account

-Find unauthorized long distance calls on phone/cell statement

-Find fraudulent checks deducting from checking account

-Notified by bank of overdrawn account

-Are unexpectedly denied credit

 

Psychologically ---

 

-Fear for life, physical harm

-Helplessness

-Frustration

-Depression, anger

-Recover is at best typically long, drawn process

 

Other effects ---

 

-Loss of productivity (at work, and home)

-Distrust of coworkers

-Strained relationships

 

Part 6 - Notes...next week Effects on businesses

 

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3.  Tech Tip Weekly: Find Out How to Filter Your E-Mail

 

Most e-mail software programs have filtering features that, if you take the time to read the instructions, can be useful in helping you manage your mailbox in many ways, including helping you filter spam directly into the trash.  Be ready to experiment with those settings, and don't auto-delete anything until you're absolutely certain that your filters are working right.  If your filter eats that e-mail from Aunt Marion, you may get a cold reception (and dinner) when you head for her house this Thanksgiving.

 

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