We are closing in on that time of year when cool weather moves in and we know the holidays are around the corner. It is also the time to get serious about utilizing some tax laws to your advantage as we head into the home stretch of 2010. Here are a few key ideas to think about:
1. Consider a Roth Conversion if you have money in an IRA account and you are willing to pay the tax now on the conversion amount. Take advantage of this especially if you are a high income individual because there is no income limit during 2010. Pay tax now on the conversion amount and get tax free distributions during retirement.
2. Hire your children to do work in your small business. The work must be legitimate, in other words you must document hours and pay, but you can pay your child $5,700 in wages tax free to them and tax deductible to you. If you are a sole proprietor you don’t even have to pay employer taxes on those wages. Your child can then make contributions to a Roth IRA. You must report wages paid to the IRS on appropriate tax forms such as W-2 and Form 941.
3. Pay for qualified tuition and and related college expenses during the first four years of post secondary education for yourself or a dependant and get up to $2,500 in an American Opportunity Credit.
4. Put in a new energy efficient furnace, air conditioner, windows or insulation in your home during 2010 and you can get energy credit of up to $1,500 or 30% of the cost of these improvements. You must act quickly because after 2010 this credit goes away.
5. Consider a setting up a Health Savings Account for you or your employees. Contributions to an HSA are tax deductible and distributions are tax free if you pay for qualified medical expenses. Employer contributions to an HSA are not subject to FICA/Medicare tax and are one way to get tax free benefits to your employees. To be eligible to set up an HSA you must be enrolled in a high-deductible health insurance plan.
6. Establish a health insurance plan for your employees. If you are an employer with less than 10 employees and you pay for at least half of the health insurance premiums for your employees you may take advantage of up to a 35% tax credit on the amount of premiums paid. To qualify for the maximum credit the average annual wages paid to employees must be $25,000 or less.
7. Forecast your income for 2011 and consider showing more taxable income (more revenue and less deductions) during 2010 because tax rates are scheduled to go up in 2011.
If any of these tax savings tips are interesting to you or if you have questions, please call me for more information. Be smart about your financial decisions and put some extra money in your pocket.