Tax planning is the art of arranging one's financial affairs in ways that postpone or avoid taxes.  Deferring and avoiding income taxes by taking advantage of beneficial tax law provisions, increasing and accelerating deductions and credits, and generally making maximum use of all relevant breaks and favorable exceptions available under the Internal Revenue Code.  The following is a summary of a few tax provisions to consider for business and individual year-end tax planning.


Individuals:
Consider taking some capital gains in 2010.  The stock market has had a pretty good run-up recently.  Now may be a good time to take some gains by selling appreciated stocks and other taxable investments owned generally longer than a year.  The current long term capital gain tax rate is 15% and it is expected to go up to 20% or more in 2011.

If you have money left in your employer-sponsored FSA or your own HSA and use it for tax-free withdrawals for non-prescription drugs like pain and allergy medications consider stocking up on these medications before year end.  Starting next year, this tax-favored treatment will only be available for prescription drugs, insulin and doctor-prescribed over-the -counter medications.  It's always a good idea to review your FSA balance before year end and try to utilize an existing balance because whatever amount one doesn't use you lose.

After 2010 the 30% tax credit (Max $1,500 overall for 2009 and 2010) for common energy-saving home improvements and equipment expires.  If you're planning on purchasing new windows or exterior doors, insulation or various more common high efficiency heating and cooling equipment do it in 2010 to qualify for the credit.  It's important to note that the improvements must be installed in 2010 and one must obtain an manufacturer's certificate that the product is eligible for the tax break.  It's also important to remember the maximum credit for these common upgrades is $1,500 over the 2 years 2009 and 2010 not $1,500 per year.

Businesses:
C Corporation business owner should consider dividend distributions or a stock redemption in 2010.  Both dividends and long-term capital gains are currently taxed at the same maximum federal rate of only 15%.  Unless Congress takes action to extend the current tax rates, higher tax rates on dividends and long-term gains will kick in for post 2010 years.  2010 may be a good time to distribute extra cash from your C Corp at a low tax cost.  This move can have other side benefits as well.

If one's planning on starting or purchasing a small business there are tax benefits to doing it before 12/31/10.  The Small Business Tax Act increased the exclusion from 50% to 100% of capital gains from the sale of a business started between 9/27/10 and 12/31/10.  The business must be a C Corp and the investment must be for five years or longer.  The exclusion will apply to at least the first $10 million of gain upon the sale if applicable requirements are met.  The C Corp requirement for this exclusion may not be such a bad thing if individual tax rates increase next year.  A maximum post 2010 individual federal income tax rate of 39.6% or higher may favor a C Corp status over S Corp assuming that the current maximum C Corp rate structure will be left in place.  Consider this scenario, buy stock in a small business C Corp by 12/31/10, build the business and in five years sell it at a tax-free gain.  Not a bad retirement plan!  If things don't turn out like you plan and have to bail out at a loss, there also a tax provision that allows one to take an ordinary loss on the sale of qualified small business stock.

There are accelerated tax depreciation write-offs available for purchases of business autos, equipment, etc.  The section 179 expensing  limit is expanded in a way that could benefit more and more larger businesses than before.  The nice part about this deduction is that it can be taken immediately for taxes and deducted over a longer periods for book purposes so not to hurt your balance sheet.  The best of both worlds!

I've covered some complicated subjects that do not apply to everyone or every type of business.  To find out more about these or other tax provisions please contact Andrew Jordan, CPA at 248-514-6213.

Dumpster Art, Tel Aviv, Israel, originally uploaded by Pimpin Turtle.

See more from Paris stencil artist C215 here:
www.flickr.com/c215

Data mining is the process of extracting patterns from data.  Data mining is seen as an increasingly important tool by modern business to transform data into business intelligence giving an informational advantage.  It is currently used in a wide range of profiling practices, such as marketing, surveillance, fraud detection, and scientific discovery.  (Source: Wikipedia definition of data mining)

Most business software allows one to extract data very easily by downloading it into Microsoft Excel or other types of files.   The data can be downloaded to included a number of data field combinations within each record. Once the information is in Excel it can be manipulated with
 the use of data or pivot tables to sort and provide valuable information about the business.

One use of this data in practice is an accountant's test of internal controls or the existence of fraud or errors as part of an internal or financial audit.  Accountants extract records from a company database and sort the data to identify transactions that are exceptions to company policies or look irregular.  Some procedures include, comparing vendor master records to employee master records for data matches, checking for gaps in sequence of invoices numbers, review minimum and maximum prices paid for inventory items, duplicate journals or amount, etc.  These are test performed to identify potential errors or irregularities.  Accountants will typically use special software that perform these test very easily.  With the ability to download data into Excel a lot of the same test can be performed without any additional software.

The mining of one's data is not exclusive to accountants.  There are a number of other potential uses for example marketing and sales research.  The record of sales transactions contains information about what products are selling and to whom.   A little creativity and time digging into the data can provide valuable information about your business.  The data can tell for example who your most profitable customers are.  This information can be used to segment your customer base to focus on your best ones!  Check-out the video bar below for examples of how one can create interactive dashboard charts from data downloads.

It's important to note that data mining generally implies the use of statistical analysis.  The techniques I reference above do not involve statistical analysis which is outside the scope of this posting.  Statistical analysis involves extraction of samples from the data to formulate predictive information.  This form of data mining is a prospective look which is a more proactive use of the data. 
For more information on this subject please contact me at mailto:ajordancpa@comcast.net. or call 248-514-6213.

Break-even:  As one can see from my previous B/E analysis posting the additional sales needed to "breakeven" on a new hire decision can be challenging.  With new revenue hard to come by, why would a company add staff if sales have to be increased so much to make a profit on the decision?

  At some point companies take a calculated risk and B/E analysis provides the sales goal needed to accomplish their business plan.  Alternatively companies adjust their budgets in other expense areas so there's not so much pressure to increase sales to cover the hiring decision.  Lastly I want to include the break-even formula to plan profits from a hiring  decision.  After all a company is in business to make a profit not just to break-even.   Using the example from my previous post, the sales target to net for example a $5,000 profit is calculated as follows:   $30,000 (New hire expense) + $5,000 (Planned profit)/Gross profit percentage 50% = $70,000 (Increase in Sales required to cover hiring decision and planned profit).


Small Business Tax Credits:  There has been a lot of legislation passed recently targeted towards small businesses.  Much of the focus has been on subsidizing employment cost through the use of tax incentives.   By reducing your employment cost through tax incentives you reduce the amount the business needs to grow to support the cost of your workforce.  The following is a brief summary of some of the key provisions:

Health Care Tax Credit for Small Employers -  The maximum credit is 35 % percent of health insurance premiums paid by eligible small business employers.  It is specifically targeted to help small employers that primarily employ low to moderate income workers.  The credit can be significant so it is worth checking into to see if you qualify.

Tax Benefits for Hiring and Retaining Unemployed - A combination of reduced payroll tax expense incentive and a new hire retention credit of up to $1,000 per hire of unemployed workers.   Qualifying new hires must be hired by 12/31/10.  You don't have to be a small business to qualify for these tax benefits.

Work Opportunity Tax Credits -  Offers tax savings to businesses that hire employees belonging to various targeted groups.  The targeted groups include, recipients of various types of public assistance, certain veterans, ex-felons and certain youth workers.

The above is a brief summary of these key tax provisions, other eligibility rules may apply.  Please contact me at ajordancpa@comcast.net for additional information.  Additional information on the above can also be obtained from http://www.irs.gov/.

Stay tuned.  In my next blog I will cover LLCs.  What's the difference between an LLC that's a sole proprietor, partnership or corporation?   What are the cost/tax advantages of each?