Schlottman CPA's PLC               

Accounting, Tax, and Financial Planning Services

6206 E. Pima St., Suite 2    Tucson, AZ 85712

Ph. 520-298-8488    Fax 520-296-6681

Here are some tips that might help you minimize your taxes.  If you'd like our professional opinion on whether any of these are appropriate for you, please contact us.  Please be sure to read our disclaimer below before attempting to use any of these tips personally.

You may either click on the quick link in the index below, or scroll down to browse the tips.

PERSONAL TAX TIPS

Arizona has some valuable tax credits that many will find useful.  Contributions up to $200 ($400 for married filing jointly) to certain charitable organizations may earn a dollar-for-dollar Arizona tax credit.  Donations to qualified school tuition organizations will help needy families attend private schools and could net you a $500 ($1,000 for married filing jointly) tax credit.  Donations to public schools or fees paid for extracurricular activities can provide an additional tax credit of $200 ($400 for married filing jointly).

Have kids?  You may be eligible for a $1,000 per child tax credit on your federal tax return!

If you itemize deductions, you might consider paying your property taxes that would normally be due on May 1, 2006 prior to December 31, 2005.  You'll lose 4 months of interest, but you might reduce your 2005 tax liability.  (Since itemized deductions are subject to certain limitations, you may need to consult your tax advisor before choosing to prepay property taxes).

Did you realize that laser eye surgery may qualify as a tax-exempt benefit under your employer's Section 125 cafeteria plan?  This could save you as much as $1,000 or more, depending on your tax situation.  If you've been thinking about having lasik or RK, you might want to include it in your medical reimbursement account election.

Are you or your dependents attending college?  You may be eligible for the Lifetime Learning Credit, the Hope Scholarship Credit, or the Tuition Deduction.

If you plan to fund an Coverdell Education Savings Account for your child, the contribution must be made by December 31st.  The maximum funding per child has been increased to $2,000 and the proceeds may be tax-free upon withdrawal.  Another great way to save for college is the Section 529 plan.

Is a Roth IRA an appropriate investment strategy for you?  It could be beneficial for your retirement planning, especially if you're young; it may also be a great way to save for future college expenses.

The deduction for health insurance premiums for self-employed individuals (and greater-than-2% shareholders of an S-Corp) has increased to 100% beginning in 2003.

BUSINESS TAX TIPS

The maximum mileage rate for business use of your automobile is currently 44.5 cents per mile.  Be sure to keep a good mileage log!

The amount of earnings subject to Social Security taxes is $94,200 in 2006.  All earnings are subject to Medicare tax.

Internal Revenue Code Section 179 allows you to write off purchases of business assets up to $105,000 in 2005, subject to limitations.  If you have not reached the limit and plan to purchase assets early next year, you may want to accelerate your plans.  In 2008, the Section 179 limit will decrease to $25,000.

If your business engaged an attorney and paid more than $600, you are required to issue them a Form 1099-MISC.

Profit Sharing or Money Purchase Pension Plans must be established by December 31.  However, funding of the plans may be deferred until the due date of the tax return.

Accrued Vacation Pay (i.e. vacation earned by your employees but not yet taken) is generally not deductible until it is actually paid.  So even though your GAAP-basis financial statements may show it as a liability, your tax return will not include it as an expense.  To prevent a large difference you may wish to limit the amount of vacation that an employee may carry over at year-end.

If you sponsor a 401(k) or SIMPLE 401(k) plan, the maximum salary deferral per employee is $15,000 in 2006, plus an additional $5,000 if the employee is over age 49.  There may be additional limitations based on compensation levels, multiple plans, and non-discrimination rules.

ESTATE TAX TIPS

Your spouse has the right to a 100% marital deduction on the value of your estate.  That means that your entire estate may be retained by your spouse without paying estate taxes, depending on your will and other factors.  However, upon his or her death, the full estate may be subject to taxation.

The normal exclusion amount for estate tax is $2,000,000 in 2006.  Scheduled increases are in effect for future years until a sunset provision in 2010.  This is a constantly changing area of the tax code, so we recommend making sure your planning is up-to-date.

Normally, life insurance proceeds are includable in the decedent's estate.  This includes "key-employee" life insurance when the employee retains incident of ownership.  However, there are several ways to structure life insurance policies to avoid inclusion in the estate.

Certain types of trusts are required to provide the beneficiary with a "Crummey Letter" explaining their unrestricted withdrawal rights.  You should provide this letter at least annually to avoid disqualification.

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IMPORTANT LEGAL DISCLAIMER:

The information in this web site should not be construed to be legal, tax, financial, or accounting advice.  Schlottman CPA's PLC does not guarantee any of the information contained herein to be accurate, complete, or suitable for any purpose and makes no warranties with regard to results obtained from its use.  For information regarding your specific situation, you should contact your own CPA, attorney, investment advisor, or other professional as appropriate.

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