Phillip Fry
Certified Tax Consultant
To schedule your
initial tax consultation please
Phillip
email at
incometaxplanning@yahoo.com,
or call him at
(63-906)
510-4000
outside of Philippines
( 63-919) 375-0302
outside of Philippines.
|
Creative 2008 Year End
Tax Planning
for Business Owners, Executives, and Professionals
What you do in income tax planning during the 2008 tax year determines your
success or lack thereof in reducing your 2008 income taxes.
Year-round income tax planning reduces a business owner, executive, or
professional’s federal income tax liability the most when the taxpayer
thinks about and implements tax planning throughout the year.
The
first steps in both year-round and year-end tax planning are to estimate
your projected 2008 adjusted gross income, look up your tax rate bracket for
that income level, and then decide whether accelerating or deferring income
or deduction will result in reducing their taxes.
1. Calculate Your Adjusted Gross Income
To
calculate your likely 2008 adjusted gross income (AGI), add up your
projected 2008 income from various sources, including salary, retirement
income, alimony received, your net business income (such as sole
proprietorship profits, and your percentage share of partnerships, Internal
Revenue Code Subchapter S corporations---taxed as partnerships, and/or
limited liability companies, also taxed as partnerships), interest income,
capital gains, and dividend income, reduced by specific personal, business,
and investment tax deductions and deductible contributions to your
retirement plan such as an IRA.
Your AGI is critical in year-end tax planning because many tax benefits are
only available to taxpayers at specific levels of AGI. For example, the
alternative minimum tax (AMT) kicks in as a big and additional income tax
obligation to pay when an individual’s AGI exceeds $33,750, or $45,000 if
married filing jointly or qualifying widow(er), or $22,500 if married filing
separately.
The AMT came into being in 1969. Its
purpose was to target a small number of high-income taxpayers who could
claim so many deductions that they owed little or no income tax. The AMT is
a separately figured tax that eliminates many deductions and credits, thus
increasing tax liability for a taxpayer who would otherwise pay less tax.
Unfortunately, a large and ever-growing number of middle-income taxpayers
are discovering that they too are subject to the costly AMT.
Moreover, AGI is used as a either a floor or a ceiling for
various tax deductions such as medical expense deductions. A taxpayer is
only allowed to deduct medical expenses in excess of 7.5 percent of AGI. For
charitable deductions, AGI establishes a ceiling.
A
taxpayer’s deduction for charitable contributions to a public charity is
limited to 50 percent of the taxpayer's AGI, or 30 percent of AGI to a
private charity.
2.
Determine Your Tax Rate Bracket
An individual's tax bracket is the tax rate at which the individual's last
dollar of income is tax for that year.
In
2008, federal income tax brackets range from 10 percent to 35 percent. A
taxpayer determines his tax bracket by reducing his AGI by the applicable
standard deduction (or the taxpayer's itemized deductions) and the
taxpayer's personal exemptions to calculate his resulting taxable income.
The 2008 Federal Income Tax Brackets are as follow
Tax Rate Single Married Filing Jointly
10% Not over $8,025 Not over $16,050
15% $8,025-$32,550 $16,050-$65,100
25% $32,550-$78,850 $65,100-$131,500
28% $78,850-$164,550 $131,450-$200,300
33% $164,550-$357,700 $200,300-$357,700
35% Over $357,700 Over $357,700
3.
Accelerate or Defer Income or Deduction
Once a taxpayer has calculated his applicable tax bracket, he should then
discover his alternatives to lower his federal income tax
liability----alternatives such as accelerating or deferring income, or
maximizing 2008 income tax deductions.
The availability of 2008 income tax planning alternatives to accelerate or
defer income or take deductions depends on an individual taxpayer's income
level, income sources, investment types, dependents, age, goals and many
other factors.
A
taxpayer can reduce his income taxes by accelerating future income into 2008
if he expects to be into a higher tax bracket in 2009 than in 2008.
Alternatively, a taxpayer may desire to defer income into 2009 when the
taxpayer anticipates being in a higher tax bracket in 2009 than in 2008.
For
example, if a taxpayer might be eligible for a significant year-end employee
bonus, then the taxpayer may consider requesting that his employer pay the
bonus prior to or subsequent to Dec. 31, depending on whether the taxpayer
will benefit from the acceleration of or deferral of that bonus income.
A
retired taxpayer may accelerate income by increasing his taxable
distributions from retirement funds or defer income by reducing
distributions.
A
taxpayer may also find that the timing of various personal and business tax
deductions might also help year-end tax planning objectives.
For example, because medical expenses are only deductible for the amount in
excess of 7.5 percent of an individual's AGI for a particular tax year, the
taxpayer should either pay as many medical expenses as possible in the tax
year with the lower AGI, or benefit from such concentration of medical
deductions into one year because the 7.5 percent exclusion is deducted only
once from the bunched medical deductions.
Taxpayers may choose to make 2008 charitable contributions by cash or check
payment, or by a credit card charge for the donation, or by the charitable
donation of tangible or intangible property at year-end for a 2008
deduction.
If the taxpayer does not have cash available, charging a charitable
contribution on a credit card will allow the individual to take a deduction
in in 2008. The contribution is charged to the taxpayer’s credit card for a
2008 tax deduction even though the taxpayer does not pay the charged amount
until 2009.
If you have a Roth Individual Retirement Account (IRA) or traditional IRA,
you can contribute up to $5,000 to it for 2008. That’s up from a $4,000
limitation for 2007. If you will be 50 or older at the end of 2008, you can
add up to another $1,000 to your IRA as a catch-up contribution.
[
Tax News ] [
Income Tax Return 2008 ] [
Creative Year End Tax Planning ] [
International Tax Planning Overview ]
[
International Tax News ] [
IRS Tax Audit Chances Likelihood ] [
Ground Lease Tax Deduction ] [
Tax Terms Dictionary ]
[
Tax Free Exchange ] [
Domestic Business Trust ] [
International Business Trust ] [
Private Annuity Agreement ] [
African Tax Planning ] [
North American Tax Planning ] [
South American Tax Planning ] [
Tax Planning Websites ] [
Tax Humor ] [
Tax Client Confidentiality ] [
Professional Fee Payment ] [
Philippines Real Estate for Sale ]
|