Tax Tips for 2007

By Jennifer Openshaw
TheStreet.com Contributor
4/23/2007

OK, so this year's taxes are a done deal.


You've wrung every possible deduction out of your TurboTax program. You've spent endless hours with your tax advisor.

You're just not sure you did everything you could have.

You ask: "Could I have sheltered more income? Were there more deductions or credits I could have taken with just a little more planning? Could I have deducted part of that Florida Keys trip because I met a potential client in Miami?"

Gradually, as 2006 taxes fade into memory, your brain shifts gears.

Most of us tend to get back down to business, shifting planning for next year's taxes to the back burner.

The result? About this time next year you'll lay awake at night pondering the same questions.

So what can you do to pay less next year?

Restructure health care costs. As an entrepreneur you can usually deduct health insurance premiums. But by dividing your costs between a less expensive, high-deductible health insurance plan and a Health Savings Account, or HSA, you can keep more for yourself, and even use tax-free HSA growth to fund retirement.

If you own a "C" corporation, you can also pay for noncovered health care costs out of the corporation's coffers -- pretax. So if you're considering that Lasik eye surgery, have your company make out the check.

Put the family to work. Hire your kids, and you'll get a deduction -- and better yet, your money stays in the family. Those kids can clean windows, maintain computers, produce marketing materials or make widgets on the factory floor. Up to $5,350 of their earned income winds up tax-free. You can set up a personal deductible IRA for each to shelter still more.

You can also transfer some ownership to kids (which helps in estate planning, too). That transfers some income to kids who don't pay taxes on unearned income under $1,700.

Get the real estate right. You can purchase a building or place of business as a personal asset and lease it to the business. As a personal asset, it will receive more favorable capital-gains tax treatment, and you can adjust the lease rate to achieve other financial and tax needs.

If your business is home-based, you can use your home for business and deduct a portion of its cost and upkeep. The rules are complex but these deductions can add up -- why not deduct 10% or 20% of the cost of that new driveway?

Get credit where credit is due. The list of business credits available is longer than I can share here (but it is listed in IRS Publication 334). They're particularly helpful for businesses operating in disadvantaged communities or with hybrid vehicles or alternative fuels. Also, don't overlook the new domestic production activities deduction, a 6% break to domestic producers of anything from widgets to sound recordings to software.

Pay yourself wisely. If you own an "S" or "C" corporation, you can adjust salary and dividends received from the business to your advantage. "S" corporation owners can pay themselves modest but realistic salaries and larger dividends to reduce self-employment tax. "C" corporation owners can retain some earnings in the business at lower tax rates, especially if reinvested in the business later.

Combine business with pleasure. Most businesses take you away from home at least at some point. So you can make the most of this by mixing business and pleasure to write off at least a part of that vacation. Go meet a client or supplier or take in a seminar or trade show, and at least part of that trip is deductible.

These strategies aren't simple and will require some careful planning. And some, like defined-benefit pensions, health savings accounts and real estate moves, take some time to plan and put in place.

So the time to start is now, not a week before the 2007 tax deadline.

Source: The Street.com