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THERE IS STILL time to reduce your 2004's tax bill

Written By: Alan A. Lips, C.P.A.
Published By: Aventura News
Date: February 2005

A small business owner recently asked the question, “Are there any other ways I can reduce my tax bill? The answer: “YES.” Even though 2004 is over, there are still ways you can reduce your business's bottom-line income tax liability. Here are a few suggestions that may give your business that extra needed deduction to lower your tax bill.

1. Ascertain the depreciation on your business's physical location, NOW.

Business owners are allowed to expense the cost of a building used for business purposes, excluding the land, over a period of 39 years using the applicable rules for "depreciation." Nonetheless, there are certain identifiable items associated with the building that can qualify to be expensed over a shorter period of time.

In order to identify these items, you should order a "Cost Segregation Study," something typically done by your accountant. This study will identify any items that can be "technically" segregated from the building itself, and that will therefore qualify for faster depreciation methods.

2. Fund your employer-sponsored retirement plan.

Although 401(k) plans and KEOGH plans must be set up before the end of the tax year in question, once in place, these plans can be funded anytime prior to filing your business tax return (including extensions) for the year in question.

In addition, there is a SEP plan that can be established after the end of the tax year in question, as long as it’s put in place by the due date of the business's tax return, plus extensions.

3. Modify your business's legal structure.

There's one more significant consideration small-business owners can address immediately after the end of the previous tax year: their business' legal form of organization. During the first 90 days of a new tax year small-business owners are allowed to change how their business is taxed for the current new tax year.

Throughout the first 90 days of the year, for example, January through March of 2005 for the 2004 tax year, you may do any of the following and have the outcome of your actions affect the entire 2004 tax year:

·        Incorporate and elect to be taxed as a "C" corporation

·        Incorporate and elect to be taxed as an "S" corporation

·        Form an LLC and elect to be taxed as a partnership

·        Form an LLC and elect to be tax as a "C" corporation

·        Form an LLC and elect to be taxed as an "S" corporation