In an earlier post, I asked ‘How Will Obama’s Tax Plan Affect Self Employed Americans?’.  Well, more details are emerging as Obama proposes $300 Billion in tax cuts.

Presidential Elect Obama is working with Congress on a tax cut proposal that would make up about 40% of a $775 billion economic stimulus package.

Cuts would be aimed at both individuals and businesses.  At the moment, these are just proposals, but here’s what’s being discussed so far:

• The largest piece of the tax relief package is a payroll tax break of $500 for individuals and $1,000 for couples aimed at low- and moderate-income workers.  I’m wondering if this will also apply to self employed people, but am unsure of the answer so far.
• Relief for businesses include a provision that would allow companies to write off huge losses incurred last year, as well as any losses from 2009, to retroactively reduce tax bills dating back five years.  While businesses would have been able to claim most of the tax write-offs on future tax returns anyway, the proposal accelerates those write-offs to make them available in the current tax season.  This will help companies who are experiencing cash flow problems due to credit being unavailable.
• The Obama plan also proposes to increase the Section 179 deduction up to $250,000 in 2009 and 2010. Currently, the limit is $175,000.  This probably won’t help most small businesses, but those that are expanding or need new equipment will benefit.
• Finally, businesses that create jobs here in the US or avoid future layoffs would receive a tax credit.  Hopefully this will reduce the amount that unemployment is expected to rise in 2009.

While I like the idea of the payroll tax credit, it really needs to apply to self employed people as well.  I’ve heard rumors that self employed people may get to reduce their 1st quarter estimated tax payment, and will confirm or deny as soon as more details become available.

Remember these are just proposals right now.  There will be lots of debate and changes before the final bill is approved.

Related Posts:

• More About Obama’s Proposed ‘Paycheck Bonus’
• Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement
• Year End Tax Tips

It’s hard to believe we’re almost at the end of the year already.  As I write this, there are only a few weeks left in 2008.

Most people probably aren’t thinking about taxes yet, but the time to do tax planning is before the year ends.  Once December 31 has passed, there’s very little you can do to help reduce your 2008 taxes.

The first step in tax planning is to determine where you are for the year.  Pull out last year’s tax return for a reference.  You also need your most current profit and loss statement, so if your books aren’t up to date, now’s the time to get caught up.

Compare your income and expenses to last year’s tax return.  Is your income up?  Do you have the same amount of deductions as last year?  If your income is up, or if your expenses were down, you may owe more taxes than you did last year.

If you are a small business owner you should be very familiar with estimated tax payments.  Have you paid in enough taxes to avoid the under-payment penalty?  The general rule of thumb is that if you expect to owe a balance due of $1,000 or more, after all of your payments (from withholding, tax credits, etc.), then you need to make estimated tax payments.

Once you have compared your current year income and deductions to last year’s tax return, where do you stand?  Do you have more taxable income this year?  If you do, then you can defer income or accelerate expenses to reduce your taxable income for the year.  Just remember, these strategies will likely increase your taxable income for the following year; your tax plan should be long-term, not just for the current year only.

Defer Income:  One way to reduce your current year taxes is to defer income.  If you are a small business owner, you have more control over this than wage earners do.  If you have accounts that you expect to bill in the last week or two of December, consider delaying your invoicing until the last few days of December or even the first few days of January.  Cash basis taxpayers report income when it’s received, so if you invoice a customer on December 28, and you don’t receive payment until January 2nd, then the income will be reported on the next year’s tax return instead of the current year.

Accelerate expenses:  Another way to reduce your taxes is to pay expenses ahead of time.  If you can see that your income is higher this year and you want to minimize your taxes, determine which expenses you can pre-pay before the end of the year to reduce your taxable income.  Some examples include your rent, insurance, utilities, or other invoices you receive at the end of the year that aren’t due until after December 31.  Also, consider stocking up on supplies, inventory, or other items you’ll need to purchase soon anyway.  Do you have any plans to upgrade your equipment or computers?  Consider doing those before the end of the year as well.

Another way to minimize your taxes is to fund your retirement account.  As a small business owner, you have a number of options including traditional IRAs, SEP IRAs, Simple IRAs, or 401K plans.  Determine which plan is best for you and fund it before the due date (this is the one strategy that doesn’t have to be done before the end of the year).

This is just a basic guideline for year-end tax planning.  To determine the strategies best for you and your small business, discuss year-end tax planning with your tax professional.  But don’t wait too long… the year will be over before you know it!

Resources:

Tax Planning & Estimates
The New Biz Tax Consultation

Related Posts:

• Obama’s Proposed Tax Cuts Total $300 Billion
• December 31st Is The Last Day for Most Tax Planning Strategies
• Savers Credit Helps Low to Middle Income Taxpayers Save for Retirement