Making the Best Mid-Year Tax Moves

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

keep the money in the account until age 591/2, an extraordinary amount may compound and all future withdrawals will be completely tax free."

There are even more benefits if you own a company with employees. For example, if you have a second home, you can rent it to your company for a retreat or a management meeting. Your company can deduct the payment, as long as it’s reasonable, while you may receive tax-free income.

Here are some other advantages that you can unearth:
Planning for retirement. If you’re a business owner, you’ll probably want to sponsor a retirement plan for your employees. Not only can such a plan reduce your company’s taxable income and help provide for your own retirement, it can also help you recruit and retain talented workers.

"We’re going to be looking at a retirement plan," says Jerome Thomas, whose company was formed last December. "We’re weighing profit sharing and 401(k) plans now." He can award tenure with profit sharing, which will match employee contributions up to a certain percentage and vest over a period of time.

Business owners who prefer simplicity may want to consider SEP and SIMPLE plans, both of which require minimal administration. "SIMPLE plans are particularly attractive if your net earnings are low," says Mendlowitz, "because you can contribute — and deduct — all of your earnings up to $6,000. You must move soon, though, because a SIMPLE plan has to be established by October 1."

New acquisitions. Exceptional Restaurant, which owns 22 Taco Bells, may make future acquisitions. If the company makes such a move, the owners should pay close attention to the way assets are classified. The more an acquisition target includes equipment and furnishings and the less brick and mortar, the more rapid the depreciation schedule. Faster depreciation, in turn, accelerates tax deductions.

"Business owners need to be careful when adding depreciable property," says Lewis. "With an S corporation, those deductions pass through to personal tax returns. They’re considered an adjustment, for purposes of calculating the AMT, so there may be adverse tax consequences. Again, it’s vital to plan with a tax professional."

Other items may arise, too, from a mid-year checkup with your tax pro. If you pass up a tax-planning session because you’d rather spend the summer golfing or fishing, you may miss out on an even more enjoyable exercise — saving money.

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