Last- and first-minute tax tips

Seven ways to make tax filing less stressful

By Chris Amorosino

Freelance writer in Unionville

If the approach of April 15 fills you with foreboding, now would be a good time to consider how you might make tax filing less stressful.

There are no good last-minute tax tips, says Douglas Joseph, director of state and local tax services at the West Hartford accounting firm Blum Shapiro. But he and Thomas Filomeno, president of Filomeno & Co., also an accounting and business services firm in West Hartford, both recommend starting the tax year right. Being organized and keeping complete records throughout the year will save you the most money and aggravation, they say.

Yet Joseph says it’s amazing how many companies are disorganized. Many lack a good financial software program or don’t appoint a dedicated bookkeeper who understands how to accumulate accurate and complete financial records, Filomeno says.

Another major “first-minute” task is hiring a qualified accountant or tax adviser, says Alan Lieberman, a partner in the Hartford law firm Shipman & Goodwin. He calls tax season the worst time to seek out a tax professional. With April 15 fast approaching, tax advisers don’t have as much time to spend right now on tax planning and looking for ways to minimize your business’s tax burden.

All that said, some of the ideas below might still be doable this tax season. If not, consider doing them for next year.

Claim the new domestic-activities-production deduction. If you’re in manufacturing, construction, engineering or architecture, your business may qualify for a deduction of 3% of net domestic production income for tax year 2005. This deduction will gradually increase to 9% by 2010, according to Filomeno.

Contribute to or start a retirement plan. If you are self-employed or have only a few employees, Filomeno says you can adopt a Simplified Employee Pension (SEP) plan up until April 15. You can then make tax-deductible contributions to the SEP in amounts up to 20% of your compensation, up to a maximum of $42,000.

Pay attention to sales and use tax rules. This can be a confusing, complicated tax area. Joseph mentions two quick guidelines: (1) Every business owes use tax whenever sales tax is not collected but should have been; and (2) a sale to a tax-exempt customer requires that the seller get an accurately completed exemption certificate from that customer. If you’re a contractor or a manufacturer (or you do business with either of those groups), you can find excellent tax guides on the Department of Revenue Services’ Web site.

Deduct the full value of equipment purchased. While this isn’t a new deduction, Filomeno calls it “a fantastic benefit.” The Section 179 deduction allows small businesses to write off the entire cost of business equipment and furniture purchased in 2005 rather than depreciate that cost over seven years. “A business could buy a $100,000 piece of equipment and write it off in one year,” he says.

Schedule tax planning now. Make certain your financial system is complete and accurate now. Then schedule a planning session with your accountant or tax adviser for this fall. Doing so will help eliminate surprises in April and will turn tax time into a relatively straightforward exercise in accumulating data.

Conduct a cost segregation study. This is worth doing if your business owns real estate worth $500,000 or more, says Filomeno. A cost segregation study can allow you to accelerate depreciation deductions. “We’ve had cases where this IRS-sanctioned study has saved clients, like owners of large shopping centers, hundreds of thousands of dollars,” he says.

Partner with your tax adviser. Lieberman advises businesses not to think of hiring a tax adviser as a necessary evil, but rather, as a money- and time-saving step. Treating advisers as business partners and letting them get to know your business empowers them to better minimize your tax burden. Choose a tax adviser referred to you by someone you know, respect and trust. And when possible, Lieberman recommends hiring an adviser who already understands your industry.