The percentage limitation may be increased to 25% by using a money purchase plan or a combination of both types of plans. While a profit-sharing Keogh permits you to vary your contributions depending on how your business is doing, with a money purchase Keogh you have to commit to a fixed percentage of net income each year.
“You should consult a specialist in this area,” says Broussard, “to ensure that you establish the Keogh or Keoghs that maximize your flexibility and your annual contributions.”
Take work home and take a home office deduction. Previously, to qualify, you must have used your home office as your principal place of business or to regularly meet clients and/or customers. “Beginning with the 2000 tax year, if you’re using your home for administrative purposes-for example, if you’re a doctor or accountant and you do your bookkeeping at home-you can take the deduction,” says Barajas. To compute what you’re entitled to, he explains, figure what percentage of the total square feet of your home is used for your office. “For example, in a 1,000-sq.-ft. home, a 200-sq.-ft. office lets you deduct 20% of the utility costs, mortgage payments, property taxes, etc.”
Take advantage of Section 179 expensing. Under IRS Section 179, if you meet certain requirements, you can “expense” or write off up to $20,000 in business equipment installed before December 31, 2000, instead of depreciating the expenditures over a longer period. Finance leases also qualify for this deduction in their year of inception.
Deduct your health insurance premiums. If you’re self-employed (or a partner or a 2% S corp. shareholder-employee), for 2000 you can deduct 60% of your medical insurance premiums for yourself and your family as an adjustment to gross income. This percentage is scheduled to increase in future years. The adjustment, cautions Genevia Gee Fulbright, does not reduce net earnings subject to self-employment taxes, and it cannot exceed the earned income from the business under which your plan was established. Be careful, though. You can’t, she says, deduct health insurance premiums paid during a calendar month in which you or your spouse are eligible for employer-paid health benefits.
The bottom line? Use the remainder of 2000 to fine-tune your tax planning. If you don’t, it could cost you.
5 Tax Changes in 2000
Here’s a heads up on five changes that could affect your mid-year tax planning (for more information, see www.irs.gov).
- The optional standard mileage rate for the cost of operating your car has increased to 32.5 cents per mile for all business miles.
- If you were affected by a Y2K failure, you can get up to a 90-day extension on tax-related actions, including filing and paying income tax.
- The tax-free status of up to $5,250 of employer-provided educational assistance benefits has been extended to include undergraduate-level courses beginning before January 1, 2002.
- If you pay a household employee cash wages of less than $1,200 in 2000 (up from $1,100 in 1999), you do not have to report and pay Social Security and Medicare taxes on those wages.
- After 1999, you can’t