Tax Reduction Tips

In the rush to get tax returns prepared and filed by April th, many overpay their taxes. Following are a few tax reduction tips that could help you save a bundle. Tax Credit For Starting A Small Business Pension Plan Establishing a pension plan can help you retain important employees. What many business owners dont realize is a tax credit can be claimed if the business has or fewer employees. Meet this requirement and you can take a tax credit of up to $ in each of the first three years of the plan. Tax credits are extremely valuable because they are deducted directly from the taxes you owe, not gross revenues. The credit is % of certain start up costs you incur in each of the first three years. The costs include the expenses incurred in establishing and maintaining the plan. They also include the cost of any educational retirement planning programs you provide for employees. For example, first assume that you spent $, starting a pension plan for your employees in . Next assume that you will spend $, in both and for maintaining the program and educating your employees. In this scenario, you would be eligible to claim a tax credit of $ in , and . Personal Loans To Business Many business owners lose track of loans they make to their business. As a result, they incorrectly classify the proceeds of the loan as part of their gross revenues. This artificially raises the gross revenues of the business and adds to the tax liability. Closely review your records for to make sure you are not making this mistake. Pay particular attention to charges on personal credit cards. You will be surprised how quickly the numbers add up. SUV Deduction Wounded, But Still Alive Much has been made about the SUV Tax Deduction that allowed purchasers of SUVs over , pounds to immediately deduct up to $, of the cost. Many mistakenly believe that the American Jobs Creation Act of eliminated this deduction. It did not. Instead, it reduced the deduction to $, with the remaining amount allocated to depreciation. This is still a significant immediate deduction. If you purchased a non-SUV truck that weighed over , pounds in , you are not restricted to a mere $, deduction. Tsunami Relief Contributions Paid in Millions of Americans contributed to charitable organizations providing relief to Tsunami victims. Typically, charitable contributions are deducted in the year they are made. New legislation, however, allows you to deduct Tsunami contributions you made in January on your tax returns. Alternatively, you can wait and deduct the donation on returns. Unfortunately, you cannot deduct the contribution on both! Sales Tax Deduction If you itemize deductions, you have a choice of deducting your state and local income taxes OR your state and local sales tax. This option is available for the and tax years. If you live in a state that does not collect income tax, the optional sales tax deduction should be claimed for significant tax savings. See IRS Publication for more information. Deduction for Discrimination Lawsuit Costs If you were required to pay attorneys fees and court costs associated with a discrimination lawsuit, you may be able to claim a tax deduction. The deduction is available only for costs and fees incurred after October , in relation to a judgment and settlement. The deduction is not limited by the alternative minimum tax. Realistically, this deduction will be more viable for the tax year, but a few taxpayers may be eligible this year. There are numerous deductions and credits available if you take the time to look for them. Taxes can be confusing, but the savings justify the time and effort of finding all available deductions and credits.