Pinnacle Consultants L.L.P.

Helping Businesses Reach Their Financial Peak

Financial Review

 Its Not Too Late To Plan For Your 2004 Tax Filing

The 2004 tax filing season is upon us, but itís still not too late to do some tax planning to lower that corporate tax bill. There were several changes to the tax code in 2004 that impact businesses; here are a few of the changes that may affect your business:

  • Business related mileage  - standard mileage rate for the cost of operating your car or truck increases from 36 cents to 37.5 cents for all business miles
  • Depreciation and Section 179 expense Ė the maximum section 179 deduction you can elect for property you place in service in 2004 is increased from $100,000 to $102,000

 There are many things business owners can do to lower their tax bill in 2004. Here are a few ideas you may want to consider:

  1. Contribute to a Retirement Benefit Plan.  Your contributions as an owner or employee are tax deductible from your current income, thus reducing your present taxes. A contribution to a tax advantaged retirement plan must come from earned income, meaning compensation for active work. An investor in a business, who isnít active, cannot deduct contributions to the retirement plan. Income generated by your investments accumulates tax free until withdrawn.  Types of plans include:  IRA, Simple IRA, SEP, 401(k), Simple 401(k), Defined Benefit Plan, Profit Sharing Plan
  1. Contribute to a Health Plan.  Tax rules for health benefits vary, depending on whether or not a business is incorporated. For C-Corporations medical costs. Including insurance premiums paid for by owners and employees is entirely tax deductible to the corporation and tax free to the recipients.
  1. Purchase in 2004, those items needed for the new year.  This will allow you to realize the tax savings from the purchase in 2004 versus 12 months from now.  These deductions can really add up, especially if you take advantage of the IRS Section 179 that allows a small business owner or c-corporation to deduct up to $102,000 of asset purchases each year as a current operating expense. Provided the listed property is used 50% or more of the time for business. This produces an immediate write-off of capital assets.  Some typical assets that qualify for Section 179 include: vehicles, cell phones, and computers.
    • For example, if you buy a $1,000 computer and use it for your business, you could deduct the full cost from your taxes. If you were in the 28% federal income tax bracket, this would save you $280 in income tax. In effect, youíd be getting a 28% discount on the computer.
    • The most popular tax deduction for a small business is for automobile expenses. This year, business owners can deduct extra depreciation on vehicles: an extra $7,650 of the cost of a new car or the full cost of a heavy SUV (over 6,000 pounds) - this could mean a deduction of up to $60,000 or $70,000 in one year!

Many business owners fail to take advantage of all the tax deductions available to their business.  Here are a few of the more commonly overlooked tax deductions you should be aware of:

  • Accounting fees for tax preparation services
  • Bank service charges
  • Business related books, magazines, seminars, association dues
  • 50% of self employment tax
  • Appreciation on property donated to charity
  • Trade or business tools with life of one year or less

As a business owner, itís in your best interest to plan for your 2004 tax filing.  There are some changes in the tax law that could impact your business.  Taking the time now to understand these tax law changes, taking advantage of some of the tax saving ideas above and ensuring that you or your tax advisor do not overlook any tax deductions for your business can have a positive impact on your bottom line!    

Note:  The information above is provided to give you some general direction regarding your 2004 taxes. However, before you complete any significant tax transactions based on the information presented above, please contact us for advice on how this information applies to your specific situation.

Thank you for your continued interest in Pinnacle Consultants.  If you would rather not receive e:mails with news, updates and tips from the financial world, please click the following link paul@pinnacleconsultants.org


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Special Points of Interest

  • The standard mileage rate for the cost of operating your auto increases from 36 cents to 37.5 cents for all business miles

  • Contribute to a retirement plan, a health plan and/or make those purchases in 2004 to lower your 2004 tax bill

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Pinnacle Consultants L.L.P.

20704 N. 90th Place

Unit 1049

Scottsdale, AZ 85255

P: 480 980-3977

F: 480 585-1920

Website:

www.pinnacleconsultants.org

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Contact Us:

paul@pinnacleconsultants.org

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