Pinnacle Consultants L.L.P.

Helping Businesses Reach Their Financial Peak

Financial Review

Are You Ready For Your 2005 Tax Filing?

The 2005 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 2005 that impact businesses; here are a few of the changes that may affect your business:

  • Standard Mileage Rates: Beginning January 1, 2005, the standard mileage rates for the use of a car will be: 40.5 cents a mile for all business miles driven, up from 37.5 cents a mile in 2004.

  • Expense Limit for SUVs: Businesses should be aware of a change regarding the deduction for certain sport utility vehicles (SUVs) placed in service after October 22, 2004. Under the American Jobs Creation Act of 2004, businesses cannot take a first year deduction of more than $25,000 for an SUV. The business would depreciate the remaining cost. The new limit does not affect other types of property where the taxpayer decides to expense the cost instead of depreciating the property.

There are many things business owners can do to lower their tax bill in 2005. Here are a few ideas you may want to consider:

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 Income generated by your investments accumulates tax free until withdrawn.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 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.

Purchase in 2005, Those Items Needed for the New Year This will allow you to realize the tax savings from the purchase in 2005 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 $105,000 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: some 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.

Purchase an Electric or Clean Fuel Vehicle  You are allowed a limited deduction for the purchase of a clean fuel vehicle placed in service during the year. Motor vehicles such as the Ford Escape, Honda Civic Hybrid and Toyota Prius qualify for the deduction. The maximum deduction you can claim is $2000 for vehicles placed in service in 2005 and $500 for vehicles placed in service in 2006.  However, you can't claim these deductions for the part of the property's cost you claim as a section 179 deduction.

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:

  • Business travel expense

  • Inventory shrinkage

  • 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 2005 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!  

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

  • Under the American Jobs Creation Act of 2004, businesses cannot take a first year deduction of more than $25,000 for an SUV

  • You are allowed a limited deduction for the purchase of a clean fuel vehicle placed in service during the year. Motor vehicles such as the Ford Escape, Honda Civic Hybrid and Toyota Prius qualify for $2000 the deduction.

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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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paul@pinnacleconsultants.org

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