THE END OF THE YEAR'S APPROACHING! IT'S TIME FOR those last-minute tax deductions! Quick, before January hits! Buy this, sell that—wait, it's what? March? Oh. Too late, then.
Not so fast. You still may be able to lower your tax bill. As you gather receipts and statements for your tax return preparer, check out these nine tips and 2007 tax code changes, then consider which ones can benefit you before you file your returns. But remember: Don't try this at home. Check with your accountant or tax consultant before assuming anything. There are exceptions and nuances to each of these rules, and he or she can help you understand them.
1 Retirement plan? It's not too late.
It's high time to maximize your retirement options. Some of you aren't taking full advantage of your profit-sharing or 401(k) plans. If you didn't talk with your financial advisor in 2007, what are you waiting for? If you don't have a plan in place, there's still time to set up a simplified employee pension plan (SEP) and have it benefit you for 2007. Do it by the time your return is due (including extensions) to claim the deduction and credits for 2007. That's Oct. 15, 2008, in the case of sole proprietorships or Sept. 15 for corporations, including both C and S corporations. The limit for SEP contributions is $45,000 per participant for 2007. Consult a retirement expert to make sure you stay within the allowable limits.
2 New tax break increases depreciation.
Many of you are familiar with rapid depreciation, or Section 179 depreciation. This special break, designed for small business owners, allows you to write off or deduct up to $125,000 of the cost of equipment you purchased in 2007. You can claim the deduction on your 2007 return whether you paid cash or financed the equipment—as long as you bought it and were using it before the end of the year. Congress thinks the Section 179 deduction is so good for the economy that it has increased the maximum for 2007 taxes from $125,000 to $128,000. The new Economic Stimulus Act will make it even sweeter: $250,000 is the 2008 limit. Of course, you can't claim the Section 179 deduction for personal items you purchased. However, if you live in a state that doesn't have a personal income tax or if you had little or no personal state income tax withheld in 2007, you have the option to claim a deduction for sales tax on personal items you purchased. This can be particularly beneficial if you purchased a new car or big-ticket item in 2007. The deduction is claimed on Schedule A if you itemize deductions on your personal return.