Mid-Year Maneuvers - Page 3 of 5

Mid-Year Maneuvers

strategy for clients. They should start their children off earning money as young as possible. Your kids should know how much work it takes to earn $150 for a pair of shoes.”

Work Opportunity Tax Credit. You don’t have to hire your children to benefit from tax breaks if you’re an employer. John Paul Williams III, 32, of Hayward, California, owns a termite control business that now includes nine full-time employees as well as two part-timers. “Business has been good,” he says, “so I plan to hire more employees. I’m aware that I might qualify for tax credits.”

Williams is referring to the Work Opportunity Tax Credit, which is payable to employers who hire qualified individuals. “The maximum credit is 40% of the first $6,000 of wages, or $2,400,” says Fulbright. “An individual must perform at least 400 hours of services for the employer to have their wages qualify for taking the full 40% credit. An employer must have individuals certified prior to hiring them, and they must be from one of nine targeted groups to be entitled to this credit.” Those groups include members of a family that is receiving or recently received Temporary Assistance; 18- to 24-year-old family members who are receiving or recently received food stamps; and 18- to 24-year-old residents of one of the federally designated empowerment zones, enterprise communities, or renewal communities. “Clients of mine have used this tax credit when it was called the Targeted Jobs Credit,” says Fulbright. “It works out to be a win-win situation for all involved.”

Tax-deferred retirement plans. Another win-win situation may result from creating a retirement plan: business owners and employees alike may benefit from tax-deferred growth. As of this writing, Williams was scheduled to meet with Gary Kerchner, an agent with Northwestern Mutual Life in San Jose, California, to discuss his options.

“At mid-y
ear 2004,” says Kerchner, “it may still be possible to shelter income from 2003. If you received a filing extension for your 2003 income tax return, you have until the due date of that return to create and contribute to a simplified employee plan (SEP) for last year. That can be a tax-saver for the owners of small companies and people with self-employment income.” An automatic extension allows you to file your return (and fund a SEP) until Aug. 16 of this year, while a further extension to Oct. 15 may be requested. Deductible SEP contributions can be 25% of your income, or up to $40,000.

Home office deductions. Further deductions may be available to Williams for work he’s doing to renovate and expand his home. “I’m setting up a home office there,” he says, “that will include business-related equipment, such as a high-speed computer line.”

Williams’ tax adviser, Ralph Grant of Grant & Smith L.L.P., an accounting firm in Oakland, California, says that creating a home office may enable Williams to convert some nondeductible outlays such as insurance and repairs to deductible business expenses. “To qualify for home office tax breaks,” says Grant, “part of your home must