Pinnacle Consultants L.L.P.

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Financial Review

Its Not Too Late To Do Some Tax Planning For 2007

The 2007 tax filing season is upon us. However, you still have time to do some tax planning to lower that corporate tax bill. There were several changes to the tax code in 2007 that impact businesses; here are a few of the changes that may affect your business:

  • Standard Mileage Rates: Beginning January 1, 2007, the standard mileage rates for the use of a car will be: 48.5 cents a mile for all business miles driven, up from 44.5 cents a mile in 2006.

  • Depreciation and Section 179 Expense:  The maximum section 179 deduction you can elect for property you placed in service in 2007 is increased from $108,000 in 2006 to $125,000 for qualified section 179 property. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $500,000. So when your purchases reach $625,000 and above you no longer get the deduction.

  • Section 179 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 2007. 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 Income generated by your investments accumulates tax free until withdrawn.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. In some plans, such as a SEP plan, a participant can contribute up to 25% of their compensation, with a maximum contribution of  $45,000. That's a pretty good contribution to your nest egg!

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 are entirely tax deductible to the corporation and tax free to the recipients.

Purchase in 2007, Those Items Needed for the New Year  This will allow you to realize the tax savings from the purchase in 2007 versus 12 months from now. These deductions can really add up, especially if you take advantage of the IRS Section 179 mentioned above. 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: manufacturing and R&D equipment, some vehicles, cell phones,  computers, off-the shelf software. 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 a Hybrid or Alternate Fuel Vehicle  You are allowed a limited tax credit for the purchase of a hybrid or alternate fuel vehicles. The credit can range from a few hundred dollars, for vehicles like the 2007 GMC Sierra Hybrid pickup truck, to $12,000 for alternate fuel vehicles like the Honda FCX. Please note that If your vehicle is a depreciable business asset, you must reduce the cost of the vehicle by any section 179 deduction before figuring the credit.

Research and Development  Businesses are allowed a tax credit for research and development expenditures.  The R&D must be related to the discovery of new information which is technological in nature and applies to a  new or improved component or product.  Those businesses that qualify can get a tax credit of as much as 20% of the R&D expenditures in 2007. 

Overlooked Deductions  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 2007 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 do not overlook any tax deductions for your business can have a positive impact on your bottom line!  If you would like more information on these tax planning ideas or any others please give us a call!

Note:  The information contained in this material represents a general overview of tax regulations and should not be relied upon without an independent, professional analysis of how any of these provisions apply to a specific situation.

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Special Points of Interest

  • Businesses are allowed a tax credit for research and development expenditures.  Those businesses that qualify can get a tax credit of as much as 20% of the R&D expenditures in 2007. 

  • IRS Section 179 allows a small business owner or c-corporation to deduct up to $125,000 of asset purchases each year as a current operating expense.


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19332 N. 100th Way

Scottsdale, AZ 85255

P: 480 980-3977

F: 480 585-1920



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