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Submitted by: Corporate America
Living in the state of California can be an expensive proposition these days. Here are some ways of cutting back on your income taxes.
Using Your Previously Funded IRA (Individual Retirement Account) to Fund the Current Years Deductible Contributions
Lets say you are short of cash and dont have enough to make a deductable contribution to your IRA by the 15th of April, there are still ways to enjoy the tax deductions. As long as you can make the full contribution by June the 12th, youre all set. What you need is a previously started IRA.
The first step is to have $4,800 distributed to you from your IRA deductions on the 15th of April. Your bank usually holds 20% known as income tax withholding so youre getting $4,000. Deposit this amount back into your IRA right away. Do this before the 15th of April and it counts as deductible contribution for the year. The great thing is you have a good 59 days to make up the withdrawal thats the amount to be taxed.
Go ahead and deposit $4,800 rollback into the very same IRA account. Again, this has to be done before the 12th of June to steer clear of taxes on the $4,000 distribution you had made to yourself originally.
Special Retirement Plans for the Self-employed or Those Having More Than One Business
This is particularly useful for the self-employed and those having multiple businesses, including partners. A tax act added in 1997 allows you to contribute to a self-employed retirement plan, by yourself, without having to make contributions on your employees behalf.
If you happen to own more than one business, this act gives you the option of having a retirement plan for just one of the businesses (the one with the least employees), even if youre the only one working in the business. It comes with a limitation though the amount you can contribute to a retirement plan revolves around self-employment earnings generated by the business with the retirement plan.
Put another way, if your business (with no employees) has less net earnings than the other business that does have employees, the amount that can be contributed to the retirement plan revolves around the smaller net earnings.
Though noteworthy is the fact that this tax act not only prevents you from contributing to a plan for your employees, it also limits the smallest potential contributions to your personal retirement plan.
Cutting Down on Home Entertainment Expenses
It may not be within your scope to entertain employees to expensive meals at upper-class restaurants but you ought to cut expenses for entertaining clients at home. Entertainment expenses fall into two categories: direct entertainment expenses and associated entertainment expenses.
Entertaining at home for business purposes, while business is being conducted results in the cost of entertaining at home being deductible as a direct entertainment expense. In the event the entertainment occurs right before or after a business meeting, the cost is deducted as an associated entertainment expense.
These are just some options of enjoying tax deductions. Go ahead and make use of them, you might find it surprising what youve been missing all along.
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