Business owners who act before the end of the year could take advantage of several ways to reduce their 2006 tax liabilities. Those who dilly-dally will have few such opportunities.
Here are three possible ways to give, and then shave the tax bill:
The Pension Protection Act of 2006 provides new breaks, especially for retirement savings and charitable donations.
For example, it extended through 2007 charitable provisions that had been enacted after Hurricane Katrina in 2005.
Sole proprietorships, partnerships and S corporations (for which income is taxable on owners’ individual returns) that donate food from their inventory to charitable organizations caring for the ill, the needy and infants may deduct up to 10 percent of their income.
C corporations, for which income is taxable on corporate returns, have been able to do this for some time. However, the new breaks also allow C corporations to deduct for donating books to public schools.
Surely your employees would appreciate having a few new things around the office. Now is a good time to buy equipment, furniture and other business assets.
Under Section 179 of the federal tax code, up to $108,000 of purchases may be deducted on 2006 tax returns, rather than amortized over several years, provided the taxpayer has earned income to offset the deduction.
For the first time this year, purchases may be linked to energy-efficient improvements that allow deductions of as much as $1.80 per square foot of flooring area in buildings that have a 50 percent reduction in energy and power costs.
Assuming certain requirements are met, owners can offer a wide range of benefits to keep employees happy and to help ensure their companies remain competitive.
These benefits are tax-free to employees, and the employer can deduct the costs of offering them: medical reimbursement plans; employer-provided education assistance of up to $5,250, including graduate school; group term life insurance for coverage up to $50,000 per employee; long-term care insurance; employer-provided adoption assistance of up to $10,900 this year; company-paid parking of up to $205 a month; and transit passes worth $105 a month.
More companies are establishing health savings accounts and flexible spending plans for medical and dependent care. Employees contribute pretax money, and the business deducts the setup costs.
Denver Post staff writer Christine Tatum contributed to this report.
