Making the Best Mid-Year Tax Moves

Following our plan will help you trim your federal, state and local obligations

business. This summer may be an ideal time for buying new cars — perhaps catching a bargain on the ’99 models before the millennium cars roll onto dealers’ lots. Says Herb Lewis, CPA, a Frazier & Deeter partner who serves as tax advisor to Exceptional Restaurant: "I’ve advised Jerome that it’s more tax-efficient to have the company provide him a car than use his own car for business. If he used his own car, then his personal deductions might be limited by the restrictions on miscellaneous itemized deductions."If you’re thinking about trading in a business car — think again. "The tax law defines automobiles selling for more than approximately $16,000 as ‘luxury automobiles,’" says Alan Zipp, a CPA in Rockville, Maryland. "With such cars, there are limits on the depreciation deductions you’re allowed, and those limits hit hardest with truly expensive cars. When you trade in one expensive car for another, you’re stuck with those limitations on depreciation."

You’re generally better off, says Zipp, if you sell your old business car, since "you’ll probably have a tax loss and that loss — which might be tens of thousands of dollars — can be deducted from your other income."

After selling your business car and deducting the loss, consider replacing it with a luxury sports utility vehicle instead of a car. If the vehicle weighs more than 6,000 pounds, it’s not subject to the luxury car limits. "If the car is used solely for business, you may be able to deduct $19,000 in the first year plus 20% of the remaining cost as depreciation," says Zipp. "With a luxury car, your first-year deduction would be limited to about $3,000."

Take a business trip. If you own a business, you can mix business with pleasure and, at the same time, shave some of your travel costs.

The trick? Make sure your trip is primarily for business. Attend an industry convention and tack on a couple of days at the end for vacationing, or schedule a series of meetings with clients or business prospects. Advises Mendlowitz: "If most of your days are spent on business — and you have the paperwork to back up your claims — you can write off your airfare and perhaps a large part of your hotel bill or car rental."

Put your child to work. The summer also may be an ideal time to hire out your kids. Not only will they gain valuable exposure to the real world, but they can also earn up to $4,300 this year, tax free. This break is available to children of all ages, as long as they receive a fair price for work they’ve actually performed. Moreover, you get to deduct the money you pay them. If your business is unincorporated and your children are under 18, no Social Security or Medicare taxes need be withheld.

"If your children earn up to $2,000 this year, they can contribute that much to a Roth IRA," says Lusby. "Assuming they

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