|
 Accounting
| Robert L.
Omer, CPA
Robert L. Omer
is a certified public accountant with RLO & Company, a team
of professionals with more than 56 years of combined tax,
accounting and consulting experience. RLO & Company and
other professionals form this multi-disciplined practice that
offers Tax, Accounting, Controller Services, QuickBooks
Training, Business Consulting and Strategic Business Planning
services. For more information, call 412-279-8110 or visit
www.rlocompany.com to arrange a one hour free consultation for
all new clients.
Saving
Money Through Tax Planning
One great way to
save money year in and year out is through periodic tax
planning. But tax planning in itself doesn’t mean taking your
pile of receipts to your accountant in April and letting him or
her sort it out. It means planning now for the year – and
years – ahead.
A multitude of
deductions are available to taxpayers, and incorporating tax
planning concepts into your monthly financial planning decisions
can put more money in your pocket for other things.
One of the key
concepts in tax planning is to analyze your tax situation for
both the current and the next year. You can then make the right
decisions that will reduce your tax bill for all years. Another
key concept is that economics always outweighs tax planning
strategies. That is to say, whatever tax planning strategy you
decide should first make economic sense for your financial
situation. Let’s detail two possible tax choices that can
impact your tax liabilities: when to defer or accelerate
deductions and when to defer or accelerate income.
Itemized Deductions
Itemized deductions
reported on Schedule A include the following types of
deductions: medical and dental expenses; taxes you paid;
interest you paid; charitable contributions; miscellaneous
deductions.
Consider deferring
or accelerating itemized deductions between two planning years
to utilize all the lower tax brackets in both years and better
manage your Adjusted Gross Income (AGI is the number at the
bottom of page 1 of your Form 1040). Managing your AGI is
important because it’s used to set thresholds for various
deductions. For example, “miscellaneous deductions” on
Schedule A (such as tax preparation fees, investment expenses,
unreimbursed employee business expenses, job search expenses,
union dues, etc.) are only beneficial to a taxpayer if they
exceed 2 percent of the taxpayer’s AGI.
Planning Concepts
and Strategies:
The IRS allows all
taxpayers to take a standard deduction amount based on filing
status. The estimated 2007 standard deduction for a married
couple filing jointly is $10,700. For single filers it’s
$5,350. For heads of household it’s $7,850.
If the taxpayer has
paid itemized deductions in excess of the standard deduction, he
or she can deduct the higher amount of itemized deductions. If
your itemized deductions are likely to be just under the
standard deduction amount, it may pay to adopt a strategy of
bunching together itemized deductions every other year (paying
more itemized deductions in that year), while claiming the
standard deduction in the non-itemizing years.
One itemized
deduction that is often overlooked or understated is non-cash
charitable contributions. Using Intuit or other non-cash
charitable contribution web sites (such as Itsdeductible.com)
will allow you to assign values to each item of clothing and
other non-cash items to maximize and properly document your
non-cash contributions.
Consider using a
bank credit card to pay itemized deductions if cash flow is a
year-end issue. This will give you a 2007 itemized deduction,
even if the balance is not paid until the following year.
Deferring or
Accelerating Income
Deferring income
until the next year – or a later year – can minimize your
annual tax bill and, therefore, give you more money to spend or
invest. Deferring income may also be helpful if you are subject
to AGI phase-out rules and thresholds, meaning that when your
AGI reaches certain dollar amounts, various tax benefits are
gradually phased out as your income grows. The phase out reduces
or eliminate various tax breaks such as itemized deductions, the
Child Tax Credit, and Education Tax Credits.
Planning Concepts
and Strategies:
Increase or
maximize your contributions to a 401(k) plan. This will reduce
your federally taxable income and reduce your AGI, as well as
accelerate your retirement income savings. Consider deferring a
year-end bonus until January of the following year. The reverse
applies if some of your income will be decreasing in any given
year. To utilize all the lower brackets, you will need to take
the bonus in the current year and reduce salary deferrals, such
as 401(k) contributions.
The time you take
to meet with your accountant and/or financial specialists for
periodic tax planning can impact not only this year’s taxes,
but future tax liabilities. A few planning changes now can put
more money in your pocket for other things later.
RLO & Company
is a team of professionals with over 56 years of combined tax,
accounting and consulting experience. RLO & Company and
other professionals form this multi-disciplined practice that
offers Tax, Accounting, Controller Services, QuickBooks
Training, Business Consulting and Strategic Business Planning
services. Contact us at 412-279-8110 or www.rlocompany.com to
arrange a one-hour free consultation for all new clients.
IRS Circular 230
disclosure: To ensure compliance with requirements imposed by
the IRS, we inform you that any tax advice, if any, contained in
this communication (including, unless otherwise provided, any
attachments) was not intended or written to be used, and cannot
be used, for the purpose of (i) avoiding tax-related penalties
under the Internal Revenue Code or (ii) promoting, marketing or
recommending to another party any matter(s) addressed
herein.
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