Tax Tips for Procrastinators

(page 2 of 2)

If your firm operates out of a home office that takes up 12% of the total space of your home, you can probably deduct 12% of your home mortgage expense, as well as additional expenses such as home repairs, utilities, and maintenance costs. If you use your car for business, Paul Stappas, a strategic planning consultant with Neshanic Station (N.J.)-based Bookkeeping Administration Management, says you can claim depreciation on your car, as well as deduct gasoline, oil, tolls, and vehicle repairs. Make sure you have a simple logbook where you document the business miles you put on your car, he says.

If you're like many entrepreneurs and you mix your personal and business expenses together, don't forget to deduct business items such as stamps, travel expenses, business telephone, and the cost of entertaining clients. "If you take a client out for coffee and a donut, you might spend $10 or $15 these days. That's a deduction you should be taking," Stappas says.

Pay Now. Even if you file for an extension on Apr. 15, get as much information to your tax preparer as possible and pay now what you think you're going to owe. Do your best possible calculation of your tax liability and send in that amount, along with your request for an extension. "It's critical to get as much of your paperwork as possible to the preparer, even if you can't finalize your return before Apr. 15," Harrison-Suits says. "You need to pay any estimated tax liability that needs to be paid so you can avoid penalties and monthly interest." The extension allows you additional time to file your return—but not to pay your tax.

If you do not have the money to pay your taxes in full, you can file IRS Form 9465, an installment agreement request. It's basically a loan from the government that accrues interest and penalties, so pay as much as you can up front and then schedule payments for the remainder.

Take One Last Opportunity. Most tax planning ends with the New Year's Eve party, but you can still make certain retirement contributions that apply to your 2007 tax year until Apr. 15, 2008—or Oct. 15, 2008, if you file for extensions. You can put $4,000 into your IRA ($5,000 if you're over 50), says Stappas, or set up a SEP-IRA and fund it with the lesser of $46,000 ($51,000 for those 50-plus) or 25% of your entrepreneurial compensation.

Plan for Next Year. Don't procrastinate in 2008. Lack of planning can translate into lack of tax deductions and increased liability, all the experts say. And rather than put away a few thousand for your retirement in an IRA or SEP, if you plan now you can set up a relatively simple, inexpensive but more powerful retirement plan where you can put away $100,000 or $150,000 annually. However, these types of plans are more complicated and costly to set up and administer. The good news is, thanks to the pension reform act passed in 2001, up to half of your first $1,000 spent on pension administration can be taken as a tax credit, says Steve Beatty, founder and president of InVest Financial Solutions for Business, a Las Vegas-based small business consultancy. "You could create a 401(k) or profit-sharing plan in 2008 and get a larger tax deduction next year," he says. "These plans' annual expense rates have gotten competitive, and it is probably a lot less expensive than you think." One client worried it would cost $50,000 to set up a pension plan for his company, Beatty says, when it actually cost $3,000.

Harrison-Suits advises her clients to hire a part-time bookkeeper, or go to a bookkeeper on a quarterly basis throughout the year. "If you get quarterly reports filed through a bookkeeper, once your fourth-quarter report is completed you'll basically have your tax records for the year ready to go and all you have to do is turn them all over to your preparer" in January, she says. Doesn't that sound nice?

Karen E. Klein is a business journalist who covers small-business issues for several national publications. She writes her Smart Answers column twice a week.