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Seven Tax-Saving Moves To Make Right Now

Last-minute tax-saving opportunities are always welcome, of course, but you’re more likely to make a noticeable dent in your tax bill if you plan well and begin early. Smart tax planning is a year-round proposition, especially if you run a small business or are self-employed. Here are seven moves to consider before the end of the year.

1. Make the most of travel deductions. Even in this age of teleconferencing, there’s often nothing more productive than a face-to-face business meeting, and deducting travel costs can make overnight trips more affordable. The IRS lets you write off airfare or car mileage as well as meals and lodging, as long as business is the primary purpose of a trip. (The deduction for meals is limited to 50% of the cost.) And taking time out for pleasure is allowed as long as you spend more time on business than on pleasure. Just don’t deduct what you spend on personal pursuits.

2. Limit your time at your vacation home. Renting out a second home will do more to cut your tax bill if your personal use of the property doesn’t exceed the greater of 14 days or 10% of the time it’s rented. If you’re there less than that and your costs exceed the rental income, you’ll be able to claim a deductible loss. Go past that threshold, and you’ll be able to use expenses only to offset the income. Keep in mind that the time you spend getting the place ready for renters or making repairs doesn’t count as personal use, even if your family tags along just for fun.

3. Buy a new vehicle. This year’s stimulus legislation created a tax-saving opportunity for car-shoppers. If you buy a new vehicle before January 1, 2010, you can deduct the sales and excise taxes attributable to the first $49,500 of the vehicle’s price. This tax break applies to passenger cars, motorcycles, light trucks, SUVs, and even motor homes weighing no more than 8,500 gross pounds. But this deduction is phased out if your adjusted gross income (AGI) exceeds $125,000 for single filers and $250,000 for joint filers.

4. Hire your child. Giving your son or daughter an after-school job not only provides valuable experience; it also can deliver up to $5,700 of tax-free income to a child in 2009. If your business is unincorporated, you don’t have to withhold employment taxes for a child under age 18, and any business can deduct the child’s wages as long as they’re reasonable for the work being done.

5. Entertain your clients. You can deduct 50% of the cost of treating a client as long as the entertainment follows or precedes a “substantial business meeting.” For example, if you finalize a new contract in the morning, you could write off a golf outing or a fishing expedition in the afternoon and dinner and drinks at night. If the client has traveled a long distance, the entertainment may take place the day before or the day after the meeting.

6. Save on energy and taxes. The stimulus act also enhances tax incentives for installing energy-efficient home improvements. Now you get a residential energy credit of 30% of the cost of the work, up from 10%, and the lifetime $500 cap on the credit has been replaced by an annual limit of $1,500. The credit covers wide-ranging improvements, from adding insulation to installing a whole-house fan or central air-conditioning, and covers work done in 2009 and 2010.

7. Be a first-time homebuyer—again. Unless you’re a confirmed city dweller and have always rented, you’ve probably owned more than one home over the years, and you wouldn’t expect to qualify for a tax break offered to “first-time” homebuyers. But the new law defines a first-timer as anyone who hasn’t owned a principal residence during the past three years. The credit is phased out for high-income tax filers. Update: The credit was scheduled to expire after November 30, 2009, but it has since been extended to May 1, 2010, with higher phase-out levels and other favorable modifications. You may even use the credit available for a home purchased in 2010 to offset your 2009 tax liability.

These are just a few of the many opportunities to cut your tax bill long before December 31 rolls around. On the personal side, for example, the ongoing turbulence in the stock market might give you a chance to generate capital losses while improving your portfolio. We can work with you and your tax professional to explore options that make sense for your business or your personal finances.


This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.

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