Tax Tips for 2000 - Page 4 of 7 - Black Enterprise

Page: 1 2 3 4 5 6 7

Black Enterprise Magazine September/October 2018 Issue

Page: 1 2 3 4 5 6 7

the first things to look into is which way to incorporate yourself to reap the most tax benefits. “If you’re a one-person operation, and you want to draw a large salary-over $100,000 with few fringe benefits-then you should be a sole proprietorship or single-member L.L.C. [limited liability corporation],” says Ed Fulbright. “For people who want a more corporate-type operation, with a salary under $60,000 or $70,000 but lots of benefits, then a C corporation can be more advantageous because of medical reimbursement plans.”

Fulbright’s client, Guy Davenport, 49, chose to become a C corp. after he left his computer programmer/analyst job with Lockheed Martin to become a computer consultant. “It was a relatively easy move for me to make,” says Durham, North Carolina-based Davenport. “I knew the owners of a company that wanted to retain me, so there wasn’t much risk in what I did. The biggest hurdle was the psychological one. I had to adjust my thinking to no longer expecting to get benefits from my employer; now I have to look to myself for that.”

Fulbright outlines the three main tax advantages Davenport gained as a C corp. “First, he was able to contribute 25% to his retirement account,” he says. “Second, under a medical reimbursement plan, the business reimbursed him for medical costs above and beyond what health insurance would cover, which helped offset profits. Finally, because he’s a home-based business, his travel to his project sites became a reimbursable expense-and these costs run him about $8,000 a year.”

“I’ve structured a retirement plan that allows me to put away twice as much money for my retirement,” says Davenport. He says his cash flow is also vastly improved. Fulbright estimates the improvement is at least 20%. Fulbright also notes that Davenport was able to shave at least 20% from his overall tax tab.

Keep scrupulous records. “The biggest problem with individuals in business for themselves, particularly small entrepreneurs, is that they don’t know how to organize their tax records,” says Barajas. He advises filing expense receipts by categories-including phone, meals, travel, etc.-instead of by months.

Good records are essential to backing up deductions that are “ordinary and necessary, which is what you can take for your business,” he notes. Keep in mind that business-related meals and entertainment are still only 50% deductible, and one of the highest audit areas is mileage deductions. “You can’t claim 10,000, 20,000 or 50,000 miles and have poor record keeping,” he warns.

Establish a Keogh retirement plan before December 31, 2000. If you want to deduct contributions to a new Keogh retirement plan for the 2000 tax year, it must be established by this date, notes Genevia Gee Fulbright. However, you don’t actually have to put the money into your Keogh(s) until the due date of your tax return.

There are two kinds of Keogh plans, she explains: profit sharing and money purchase. The maximum annual tax deduction for a profit-sharing Keogh plan $30,000 or 15% of your net self-employment income (not to exceed $160,000), whichever is less.

Page: 1 2 3 4 5 6 7

Join the Conversation