Income Tax Refunds: Better Late Than Never

On December 19, 2007 Congress enacted legislation, which shields middle and upper middle taxpayers from the alternative minimum tax. Unfortunately, some taxpayers who are subject to the AMT will not be able to file their returns or get their refunds until February of 2008. Due to the late action of congress the IRS will be unable to process five AMT-related forms until February 11, 2008. The forms that are subject to the delay are the following:

1) Form 8863, Education Credits.
2) Form 5695, Residential Energy Credits.
3) Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A filers.
4) Form 8396, Mortgage Interest Credit.
5) Form 8859, District of Columbia First-Time Home buyer Credit.

Year-end tax planning is imperative as it allows taxpayers to minimize their 2007 tax bills by timing the receipt of income and the claiming of deductions. Take advantage of Code Sec.179 by expensing, rather than depreciating, $125,000 worth of certain computer software or other business property purchased as late as Dec. 31, 2007.

Pay Deductibles Prior to Year-End. A good way to increase 2007 deductions is to pay deductible expenses such as charitable contributions, medical and dental expenses before year-end. Keep in mind that making a charitable contribution (or a medical care payment) with a credit card will yield a current deduction even though payment is not made until next year. Note that a donor’s pledge or promissory note does not qualify as a deductible payment this year.

Make Contributions to Retirement Plans. Taxpayers who make tax-deductible contributions to a tax-deferred qualified retirement plan before

year-end will benefit from a tax deduction as well as tax-deferral on the income earned by the investment for the long-term. The funds will generally be taxed when withdrawn, but most taxpayers expect a lower tax bracket at that time. In 2007, taxpayers can contribute up to $15,500 to a 401(k), 403(b), 457 or Simplified Employee Pension (SEP) IRA plan. Taxpayers who are age 50 and older can contribute an additional $5,000 under the catch-up provisions for a total contribution of $20,500.

Make IRA Contributions.For 2007, taxpayers may contribute a combined total of $4,000 to a traditional IRA or a Roth IRA. In addition, taxpayers who are at least 50 years old by year-end may make an additional contribution of $1,000 for a total contribution of $5,000. They have until April 15, 2008, to make their 2007 contribution to either a traditional IRA or a Roth IRA.

I Have My Corporation or LLC. Now What?

You have paid the filing fees, obtained an operating agreement or bylaws, documented the initial meetings and are the proud owner of a corporation, an LLC, or possibly both. Now that the entities are formed the first obvious step is to conduct business and start generating income. However, there are other activities outside the actual business activity that are essential to the well being of your newly established entity.

One important activity that small business owners often overlook is documenting decisions with meeting minutes. It is essential that as business owners you have at least annual meetings, which you document with official minutes. Also, it is recommended that any special decisions outside normal operations that may effect the entity’s tax situation be documented with minutes.

Without these minutes you may be risking your financial well being. Often courts will look at the meeting minutes when deciding whether or not to pierce the corporate veil. It is also possible the IRS may look at your minutes to establish the fact that you are treating your entity as a legitimate business and not as a way to deduct non-deductible personal expenses. In either scenario without the proper documentation you could find yourself on the road to financial ruin.

Final Passage of Alternative Mininmum Tax (AMT Patch)

Wednesday, December 19, 2007, House of Representatives passed the Alternative Minimum Tax (AMT). The legislation is now on the way to the President for his signature. Once signed the Internal Revenue Services can begin the remaining preparation for the next year’s filing season.

Since the AMT's inception nearly 40 years ago, the amount of income you're allowed to exempt from AMT consideration has never been adjusted for inflation.

It was meant to catch wealthy tax filers who otherwise would not have paid much under the regular income tax code. But because average income has outpaced inflation over time, more and more people start to look like the rich guys when doing their AMT calculations.

Since 2001, Congress has temporarily increased income exemption levels. The last "patch" - for 2006 - put the exemption levels at $62,550 for joint filers and $42,250 for single filers. The bill passed by the House calls for an increase in those levels to $66,250 and $44,350, respectively. Without a patch, the 2007 exemption amounts will fall to $45,000 for joint filers and $33,750 for single filers.

Traders Accounting Helps Businesses Understand Changes in Texas Franchise Tax Laws

For business owners who are not understanding the changes in the Texas franchise tax law, Traders Accounting is helping. They are the leader in business consulting and tax planning services offering expert advice on how to prepare for the implementation of the new laws. “We at Traders want to help the Texas state comptroller’s office and ensure business owners understand what is now required of them.”The Texas state comptroller's office is providing the forms through their website.

According to the Texas state comptroller’s office, “the Texas franchise tax is a privilege tax imposed on each taxable entity chartered/organized in Texas or doing business in Texas.” Each entity will have a tax rate between 0.5% and 1% depending on the criteria listed in the new Texas franchise tax instructions.

Starting a Corporation or LLC? You get what you pay for.

You have read all the articles and listened to the professionals and you are convinced that it is time for you to establish a corporation, an LLC or possibly both. Now that you have moved passed the decision of needing an entity it is time to answer the question, how do I get started?

When starting your entities it is tempting to take the cheap alternative, which is to form the entities yourself. However, incorporating business entities is not as easy as it sounds. The first step is you must complete the proper application forms required by the state agency responsible for controlling businesses in the state. Once this is accomplished the state agency will send you the articles of incorporation for your entity. This task is generally simple enough however this is still not enough. You will also need a set of bylaws in the case of corporations, an operating agreement in the case of LLC’s and minutes of the initial meetings. These documents will be very important to the future of your business. These documents contain the rules by which the entity will operate. These documents are important for several reasons. Without these rules being properly documented you are left vulnerable to the machinations of a disgruntled partner or employee. It is possible the courts will look at these documents in cases where a creditor is looking to pierce the corporate veil. Often banks and brokerages will want to see these documents before they will allow an account to be opened. Finally, the laws in your state may require such documents to be drafted and maintained.

In business it is important to cut costs. When it comes to forming your entity however, the cheap way could prove detrimental not only to the business itself but, also to you as an individual. So when forming your business structure, it is recommended that you use a professional that has knowledge and will ensure your business's success.