Tax Tips to Help you Succeed

by Elizabeth Wilkinson

The New Year is synonymous with a fresh start. We all make resolutions to eat better, drink less and exercise more. Yet with the current economic challenges, it’s more important than ever to make and keep a New Year’s resolution that has nothing to do with caloric intake: Resolve to organize your professional and personal finances, and keep them in order.

Because of the down economy and credit crunch, businesses will be looking for strategies to reduce expenses and raise cash. The key to formulate a plan and stick to it, suggests Wanda Denton, tax manager in the Phoenix office of Grant Thornton LLP. “Managing your tax burdens is one area where appropriate planning and action can put much-needed cash into your pocket,” she says.

In planning your finances for the upcoming year, Denton suggests asking yourself the following questions:
• Am I timing investments to take full advantage of the 2008 economic stimulus legislation?
• Am I confident that I have taken full advantage of opportunities to accelerate expenses and defer taxable income?
• Am I taking full advantage of opportunities to reduce “above-the-line,” non-income tax burdens such as sales and use tax and property tax?
• Am I maintaining an active research and development program?
• Is my company taking full advantage of tax credits offered by the federal as well as state and local governments?
• Have I considered an IRS interest review?
• Have I explored other ways to reduce taxes or accelerate refunds?

For businesses, President-Elect Obama has supported targeted tax provisions such as the research credit. His platform includes making the research credit permanent, eliminating capital gains taxes for investments in startup businesses, developing new tax credits for companies that stay in the U.S. and implementing a new refundable tax credit for up to 50 percent of small business’ healthcare premiums. Business tax relief will be focused on creating and keeping domestic jobs and spurring investment.

Taxes will change outside of the business sphere as well. All of the 2001 and 2003 tax cuts are scheduled to expire by the end of 2010. Obama has committed to an extension of those tax cuts for married couples earning less than $250,000 ($200,000 for singles). For families and singles earning more than those same amounts, his plan allows for those tax rates to return to their pre-2001 levels.

While the government will decide how to direct future tax legislation, it is up to you to take stock of your personal finances in this changing economic climate. And there is no better time to do it than at the beginning of a new year.

Peter Eickelberg of local wealth management firm Keats, Connelly and Associates suggests weighing your options with the 2008 and 2009 tax seasons. “Consider realizing capital gains in 2008 at the 15 percent rate and wait to take losses until 2009,” says Eickelberg. “Your losses will be more valuable against the higher expected capital gains rates. However, if you have already taken losses in 2008, consider that you will have to use up all losses before you can take any more gains in 2008.”

Eickelberg says you may want to consider accelerating your income for 2008 if you are in one of the higher tax brackets. For example, if you can receive payment early for work to be performed in 2009, you could be able to claim it as 2008 income and pay tax at the current rates. Before following this strategy, check with a tax advisor since there could be circumstances that would invalidate this strategy.

And one final resolution: Indulge a little! Although you may find yourself having to restructure your finances, find a way to make the extra work worth it. After all, what good is saving all this money if you can’t use it? Here’s to a happy, healthy and financially rewarding 2009!

Elizabeth Wilkinson works for HMA Public Relations in Phoenix, focusing on strategic planning for finance, tax and other professional service industries.