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Income Tax Strategies To Lower Your Liability
Now that you have projected your total 1999 gross profit or loss using the information provided in my last article (Time for Check Up) , you have created a very useful management tool. This tool can help you to determine your areas of financial strength and weakness. If you have projected a very large profit for the year, then you may be headed for a very large income tax liability. There are several ways you can reduce this liability. The best way to save on taxes is to have accurate records. Keep EVERYTHING related to your business finances and be sure to pass this information on to your tax preparer. Record all of your related cash expenses, credit card charges, parking receipts, mileage logs, and report all income received. This may seem like a hassle, but it is a clear indication of an organized business owner who is trying to obtain the best possible tax deductions. Contribute as much as possible, within the IRS guidelines, into some sort of tax deferred retirement plan such as an IRA, SEP, 401(k) or Keogh. A husband and wife can each contribute up to $2,000.00 into an IRA, even if one of them is unemployed. If you contribute as little as $100.00 per month beginning on your 30th birthday into a mutual fund IRA that returns an average of 10% a year, you can create a retirement account balance of $342,589.00 by the age of 65! Wow!! You may want to consider prepaying some expenses in 1999 such as insurance or renewing a business subscription a bit early. You might want to investigate the option of opening a medical savings account (MSA). To qualify for this new medical plan you must be self-employed or the employee of a firm with fewer than 50 employees and it must be used in conjunction with a high deductible insurance plan. This money will grow tax free and can be withdrawn tax free as long as it is used for unreimbursed medical expenses. Donations you make to a qualified organization create another means to reduce your taxable income. If your donation is $250.00 or more, please be sure to get a written receipt from the organization for your income tax purposes. If you used your personal vehicle for business related purposes, you are eligible for a mileage reimbursement. This will be discussed in more detail in my next article for Childfun and a free mileage log will also be provided. Now, if your 1999 projection reveals a loss, you need to look in more detail at each source of income and each expenditure to examine exactly what is coming in and going out of your business. Keep in mind that if you business is consistently reporting a loss, the IRS may view it as a hobby thus eliminating many routine daycare business expenses! Brigitte A. Thompson, President (WAHM of Sarah 1/93 and Jacob 4/97) DATAMASTER, LLC~Dear Reader: You can help us make this section even better! All of our articles and ideas have come from our imagination and from reader submissions. Please use this form to contact us if you have content you would like to add to this website. Make sure to add your comments at the bottom of the article! And don't forget to visit us on our child care forums for friendship, support and learning! Webmasters and Authors: We will gladly include a link back to your site or book in exchange for sharing your content. Just contact us!
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