The tax audit rates of the largest companies are less than half what they were just 20 years ago while more small and mid-size businesses are coming under scrutiny, this according to an organization that monitors the IRS. Read more for yourself.

Filing your 2009 tax return might signal the official end of 2009, but for tax-savvy individuals, it’s also the signal to start tax planning for 2010. Getting an early start on your 2010 tax planning will help you take maximum advantage of the latest tax breaks, inflation adjustments, and retirement options.

* First, you should always commit to maximizing your retirement plan contributions, if you are able. This will lower your 2010 taxable income and enhance your nest egg to boot. If you have an IRA, consider making contributions earlier in the year to reap extra tax-deferred earnings.

* Second, minimize any surprises next year by examining your paycheck withholdings now. Are tax withholdings on track with your current financial situation? A large tax refund or amount due on your 2006 return might require an adjustment to your Form W-4 for 2010. Additional factors to consider include recent changes to family income, a new home, or children no longer qualified as dependents.

* A law enacted in 2006 extends the age threshold for taxing children’s unearned income at the parent’s higher tax rate. This might be a good year to consider a 529 college savings plan as an alternative to transferring funds directly to a child’s account.  Additionally, the state of Georgia has expanded its deduction for contributions to a Georgia 529 college savings plan.

* Don’t forget to take advantage of available energy tax credits this year. Qualified home improvements can trim your utility bills and lower taxes at the same time.

* The most common tax-related resolution – and the hardest to keep – is a vow to maintain better tax records. The deductions for higher education expenses and teacher’s out-of-pocket expenses have been reinstated for 2010. These and other deductions and credits could be lost if you don’t have a satisfactory recordkeeping system.

Give us a call for guidance in implementing the best tax planning strategies for your particular situation.

Georgia’s 529 College Savings Plan has a new name – it’s now the Path2College 529 Plan.  Included in the plan are two new investment options, lower fees and an improved Georgia state income tax deduction.

Contributions to the plan are made on an after-tax basis for federal income tax purposes.  However, beginning with the tax year 2007, contributions to the plan are deductible up to $2,000 for Georgia income tax purposes.  There are no income restrictions on this deduction, however the deduction is not available for transfers from other states’ 529 plans.

Contributions to the Path2College 529 Plan may reduce the taxable value of your estate. Contributions to the Path2College 529 Plan, together with all other gifts from the account owner to the beneficiary, may qualify for an annual federal gift tax exclusion of $12,000 per donor, per beneficiary for 2010. If an account owner’s contribution to a Path2College 529 Plan account for a beneficiary in a single year exceeds $12,000, the account owner may elect to treat up to $60,000 of the contributions, or $120,000 for joint filers, as having been made over a period of up to five years for federal gift tax exclusion.
Both withdrawals and earnings from the plan are free from federal and state income taxes when used to pay qualified educational expenses.

You can open an account online or contact Path2College 529 Plan representatives at 1-877-424-4377.  As always, if you have questions, do not hesitate to contact us at info@muddlee.com.

In the past, tax planning for a closely held company often meant paying year-end bonuses equal to the corporation’s taxable income. After deducting the bonuses, any corporate tax liability would be wiped out, and double taxation would be avoided.

However, consistently “zeroing out” corporate income may attract IRS attention, and using bonuses to eliminate corporate income isn’t necessarily the best way to minimize taxes for the owner-employee.

Here’s another reason it may not be wise to end up with no corporate tax. According to the general rule for corporate estimated taxes, the IRS won’t charge a penalty as long as a company pays current-year estimated tax of at least the amount that was owed on the preceding year’s return. However, this “safe harbor” is available only when at least some tax was owed for the prior year. If a company shows zero tax liability in a given year, the next year’s estimated payments must equal 100% of the expected tax liability for that year. So you might want to plan corporate income and deductions to always show at least some taxable income and some tax liability.

Example: Your corporation will incur a small operating loss this year. Next year is likely to be more profitable, with projected income tax of $100,000. That means the company must pay quarterly installments of $25,000 each. However, with tax planning, if your company had $10,000 of taxable income this year, this year’s tax bill would be $1,500 (15% of $10,000). Next year, you would be required to prepay a total of only $1,500, reducing your quarterly installments to $375 each. The balance of your taxes would be due on the filing date for next year’s return, but in the meantime, you have the use of your cash.

Note: Rules differ for large corporations. For assistance with the tax planning for your closely held company, give us a call.