There?s Still Time to Minimize Tax Liabilities

It’s getting close to the end of the year, and many people are evaluating their tax situation, whether it’s for their business or themselves. By accelerating deductions, deferring income and adjusting investment portfolios, people can relieve part of their tax burden when tax time rolls around.

Tony Uth (pronounced “youth”), a partner at Tullius Taylor Sartain & Sartain LLP in Fayetteville, said people should project their tax liability for the year as soon as possible, even as early as January. But there’s still time to make changes for the current year.

The first thing they need to do is make sure expenses they want to deduct are deductible for the current year, he said. If they are deductible, then paying those expenses, even with a credit card, would provide more deductions.

“In a typical case, you’re better off accelerating your deductions,” Uth said. “If you’re an individual or a business, you try to get as many deductions as you can get.”

Another way to accelerate deductions is to pay state income tax now, make charitable contributions or, if the client has a small business, buy any needed equipment before the end of 2005.

Uth said the Section 179 election allows a business owner to deduct expenses of equipment up to $105,000, as long as it was purchased and put into service in the year it is to be used as a deduction. For purchases costing more than $420,000, there are phase-outs. Section 179 is primarily for small business owners, Uth said.

Another option is for clients to defer income any way they can if they know they will make less money in the next year. One way, for someone who is expecting a big bonus, is to ask the boss if he or she can hold off on paying the bonus until January instead of December. Another way is for business owners to wait until January to bill clients.

“If you’re deferring income, some self-employed folks will delay year-end billing to clients so that payments won’t be received until 2006,” Uth said. “So, sometimes if your business allows you, you can adjust your billings so that you can push income into 2006 versus 2005.”

Don DeSoto, partner with BKD LLC in Fort Smith, said people look to their investment portfolios to help with tax liabilities.

“If they have stocks with gains they will donate a portion to charity to get the charitable write off,” DeSoto said.

And if someone has a capital loss, there may be some stocks they can sell to trigger some gain, Uth said.

“That’s good to look at that so you won’t be surprised April 15, when it rolls around,” Uth said.

Uth said that having a projection plan is the best option. His company takes its clients’ previous year returns and compares them to current information to see what’s going to happen next year. That helps to determine what the facts are and what tricks can be applied to help ease the tax burden.

“It’s good that when you plan you look at both years,” Uth said. “You don’t want to get into a situation where you haven’t [planned] — with all the various phase-outs there — and you’ve done something in 2005 that if you would have waited to 2006 it would have saved you some money.”