Tax Attorney Help: Tax Reduction Tips

By: Richard Chapo

In the rush to get tax returns prepared and filed by April15th, many overpay their taxes. Following are a few taxreduction tips that could help you save a bundle.Tax Credit For Starting A Small Business Pension PlanEstablishing a pension plan can help you retain importantemployees. What many business owners don’t realize is a taxcredit can be claimed if the business has 100 or feweremployees. Meet this requirement and you can take a taxcredit of up to $500 in each of the first three years of theplan.

Tax credits are extremely valuable because they arededucted directly from the taxes you owe, not grossrevenues.The credit is 50% of certain start up costs you incur ineach of the first three years. The costs include theexpenses incurred in establishing and maintaining the plan.

They also include the cost of any educational retirementplanning programs you provide for employees.For example, first assume that you spent $1,500 starting apension plan for your employees in 2004. Next assume thatyou will spend $1,200 in both 2005 and 2006 for maintainingthe program and educating your employees. In this scenario,you would be eligible to claim a tax credit of $500 in 2004,2005 and 2006.

Personal Loans To Business
Many business owners lose track of loans they make to theirbusiness. As a result, they incorrectly classify theproceeds of the loan as part of their gross revenues. This artificially raises the gross revenues of the business andadds to the tax liability. Closely review your records for2004 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 AliveMuch has been made about the “SUV Tax Deduction” thatallowed purchasers of SUVs over 6,000 pounds to immediatelydeduct up to $100,000 of the cost. Many mistakenly believethat the American Jobs Creation Act of 2004 eliminated thisdeduction. It did not. Instead, it reduced the deduction to$25,000 with the remaining amount allocated to depreciation.

This is still a significant immediate deduction. If youpurchased a non-SUV truck that weighed over 6,000 pounds in2004, you are not restricted to a “mere” $25,000 deduction.

Tsunami Relief Contributions Paid in 2005
Millions of Americans contributed to charitable organizations providing relief to Tsunami victims.Typically, charitable contributions are deducted in the yearthey are made. New legislation, however, allows you todeduct Tsunami contributions you made in January 2005 onyour 2004 tax returns. Alternatively, you can wait anddeduct the donation on 2005 returns. Unfortunately, youcannot deduct the contribution on both!

Sales Tax Deduction
If you itemize deductions, you have a choice of deductingyour state and local income taxes OR your state and localsales tax. This option is available for the 2004 and 2005tax years. If you live in a state that does not collectincome tax, the optional sales tax deduction should beclaimed for significant tax savings. See IRS Publication 600for more information.

Deduction for Discrimination Lawsuit Costs
If you were required to pay attorney’s fees and court costsassociated with a discrimination lawsuit, you may be able toclaim a tax deduction. The deduction is available only forcosts and fees incurred after October 22, 2004 in relationto a judgment and settlement. The deduction is not limitedby the alternative minimum tax. Realistically, thisdeduction will be more viable for the 2005 tax year, but afew taxpayers may be eligible this year.

There are numerous deductions and credits available if youtake the time to look for them. Taxes can be confusing, butthe savings justify the time and effort of finding allavailable deductions and credits.
About the Author:Richard Chapo is CEO of http://www.businesstaxrecovery.com - Obtaining tax refunds for small businesses by finding overlooked tax deductions and credits through a free tax return review.