It's time to think about your taxes

INDEPENDENCE, Mo. -- The end of the year is approaching and most people are thinking about the holidays, but business owners also need to think about minimizing their taxes.

There are dozens of firms offering year-end tax advice that can help small business owners save a bundle. Here are five tips we found that the experts seem to agree about.

- Tip 1 - Defer income wherever possible. Business owners can defer income by delaying the mailing out of bills to customers until the new year. Every cent earned in December goes on your April 2005 tax bill, but money deferred until January will not owe taxes until April 2006.

A problem with this strategy, however, is some higher earning business owners need to beware of getting ensnared by the Alternative Minimum Tax. If your income is more that $100,000 per year, if you have exercised incentive stock options, or if you have extremely high amounts of itemized deductions, the AMT could catch you.

The AMT was designed to make sure wealthy people pay their fair share of taxes, so in some cases it is better not to defer income and instead pay the AMT. This could make things easier on you the next tax period.

- Tip 2 - Invest in your business. Earlier this year, the popular 50 percent write-off for new assets in the American Jobs Creation Act was not extended, so this provision is going to expire at the end of 2004.

Business owners should take advantage while they still can, and purchase business equipment that can be ready and available for use in 2005. If you wait until January to make the purchase, you may not get the tax break next year, unless Congress passes a new law.

- Tip 3 - Donate to charity. Donating property, slow-moving inventory or unused possessions instead of cash could get you better benefits. Most self-employed taxpayers can deduct charitable contributions up to 50 percent of their income.

Be sure to accurately list the fair market value of items being donated, especially if worth more than $500, because the Internal Revenue Service is taking a close look at these deductions.

- Tip 4 - Pay your bills early. If you have any bills due in January, pay them in December. This could include rent, insurance, utilities, cell phones, heat or other business costs. This will lower the income reported on your April 2005 tax bill.

- Tip 5 - Contribute to a retirement plan. This is a great way to reduce your income for the year, yet still maintain a benefit.

Money put into a retirement plan such as a KEOGH or Roth IRA, can compound over time completely free of taxes. Be sure to check the maximum allowed contribution limits for these funds.

Please remember, these are only tips and not every taxpayer is under the same circumstances. To maximize the benefits available for small business owners, consult a qualified accountant or tax professional.

To reach James Dornbrook e-mail james.dornbrook@examiner.net or call (816) 350-6322.