02/ 11/ 2008
by Barbara Weltman
Reduce your tax bill with several new or improved business-related tax breaks for 2007 returns.
Domestic production activities deduction: If your company manufactures, builds, grows or extracts something domestically, you may be eligible for a deduction of 6 percent of your net income from these activities; the deduction was only 3 percent in 2006. This no-cost deduction (you enjoy it because of what you do) can result in significant tax savings on your 2007 return, but the rules are highly complex, and it's wise to work with a tax adviser to maximize this write-off.
Expensing for equipment purchases: If you bought and placed in service any computers, office furniture, machines or other equipment in 2007, you can elect first-year expensing (also called the Section 179 deduction). This allows you to immediately deduct the cost up to $125,000 (up from $108,000 in 2006), instead of depreciating it over five years, seven years or longer periods fixed by law. The deduction applies to both new and pre-owned equipment and can be claimed even if you finance the purchase price in whole or in part.
Retirement plan contributions:
It's not too late to shelter income and save for retirement by making tax-deductible contributions to a retirement plan for 2007. If you had set up a 401(k) or profit-sharing plan for 2007 by Dec. 31, you have until the extended due date of your return (Sept. 15, 2008, for corporations and Oct. 15, 2008, for other businesses) to make your 2007 plan contribution. If you missed the year-end deadline for signing the paperwork to create a plan, you can still set up and fund a Simplified Employee Pension (SEP) plan by the extended due date of your return.
Car expenses:
The IRS-fixed standard mileage rate that you can use to determine the deduction for business travel in your car is 48.5 cents per mile (up from 44.5 cents per mile in 2006). Alternatively, you can deduct your actual costs if you have the records to prove it. Either way, you must have written records to show the amount of business mileage.
Bonus: Don't overlook parking fees and tolls, which can be claimed whether you use the standard mileage rate or deduct your actual car expenses.
Health coverage:
If you had a high-deductible health plan in 2007 to cover medical costs after satisfying a significant deductible, you can make tax-deductible contributions to a health savings account. For 2007, the contribution limits have increased to $2,850 for individual coverage, or $5,650 for family coverage. Contributions can be made through April 15, 2008. Also, the HSA contribution is no longer limited to the policy's deductible as it was in prior years, and there is no longer any proration on the contribution you make during the year you become eligible for the HSA. Further, an HSA can be funded via a one-time transfer from an IRA, a flexible-spending account or a health reimbursement account, although no deduction can be claimed for these funding options. Limits apply, so check with your tax adviser.
NFIB.com
Before you file, check out NFIB.com's collection of articles available in “2007 Tax Resources” in the “Taxes” section of www.NFIB.com/toolsandtips.
