Countdown time is here again, with reminders everywhere pointing out how many days are left until the New Year. While you’re marking your calendar for the holidays, remember that countdown time is great for tax planning, too.

The strategy you can use to reduce your 2007 tax bill is to deferring income and accelerate deductions.

Deferring Income

1. If you are planning on selling an investment on which you have a gain, it may be best to wait until after the end of the year to defer payment of the taxes for another year;

2. If you are due a bonus at year-end, you may be able to defer receipt of these funds until January. This can defer the payment of taxes (other than the employment taxes withheld) for another year. Deferral of tax generally won’t work where the bonus is contractually due in 2007. Negotiate the receipt date to be January 1 or later;

3. If your company grants stock options, it may be wise to wait until next year to exercise the option or sell stock acquired by exercise of an option. Exercise of the option is often but not always a taxable event; sale of the stock is almost always a taxable event;

4. If you are self employed, and can afford the delay in cash inflow, defer sending invoices or bills to clients. If your business is cash basis, you can send invoices in late December so you receive the cash after December 31. If your business is accrual basis, send invoices after December 31.

Accelerating Deductions

1. Pay your entire property tax bill, including installments due in year 2008 by year-end;

2. 2007 year end purchases to consider:

Hybrid Vehicles

The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed. The credit is only available to the original purchaser of a new, qualifying vehicle.

Home Improvements

Tax credits are available for certain types of home improvements including adding insulation, replacement windows, and certain high efficiency heating, hot water heaters and central air conditioning systems. The maximum amount of homeowner credit for all improvements combined is $500 during the two year period of the tax credit. This tax credit applies to improvements made to your primary residence from January 1, 2006 through December 31, 2007.

3. Make Charitable Contributions

You can donate property as well as money to a charity. A deduction is usually available for the fair market value of the property. However, for certain property, the deduction is limited to your cost basis. While you can also donate your services to charity, you may not deduct the value of these services. You may also be able to deduct charity-related travel expenses and some out-of-pocket expenses.

4. Investment Gains And Losses

Minimize taxes on investments by judicious matching of gains and losses. Where appropriate, try to avoid short-term gains, which are usually taxed at a much higher rate (up to 35%) than long-term gains (15% or lower). You might consider, where feasible, trying to reduce all capital gains and generate a capital losses up to $3,000.

The maximum long-term capital gains rate is currently 15%. This is set to rise to 20% in 2011. Many believe this increase could come about sooner with a change in administration in 2009.

Note: capital gain rate starts at Zero in 2008. From 2008 through 2010, if your taxable income falls within the 10% or 15% brackets, the rate you’ll pay on your federal return for certain dividends and long-term capital gains will be zero.

The zero tax rate generally applies to gains on sales of assets such as stocks, bonds, and mutual funds that you owned longer than a year. Qualified dividends, which include dividends on most US stocks, are also eligible.

Though the zero percent tax break becomes effective January 1, 2008, you can start planning now. For instance, it may be beneficial to wait until 2008 to sell appreciated stocks.

Some of the tax deductions mentioned above are not deductible for alternative minimum tax. If this applies to you, a different tax strategy may be required. Consult your CPA for the specific tax strategy to minimize your tax. Also, consider the tax impact of 2007 and 2008 tax years together. It may be best to pay more tax for 2007 if you expect to be in a higher tax bracket in 2008. Again, consult your CPA for the best tax strategy. December is always a good month to see your CPA.

I published a previous article on year end tax planning. See Year End Tax Planning for additional ideas. So much has changed in the tax code with expiring tax provisions and new tax provisions, that an update for 2007 was required.

Should I take wages or dividends from my privately owned
corporation? What is the best way of taking money out
of my company? In other words, what will result in the
least amount of income taxes?

A Canadian accountant will perform a dividend-salary mix
calculation to determine the best way of withdrawing money
from the corporation.

Even though Canadian income tax laws are different from
other jurisdictions, some of the same principles of tax
planning will still apply.

In order to qualify for Canada Pension Plan (C.P.P.)
benefits or to make Registered Retirement Savings Plan
(R.R.S.P.) contributions, there must be some earned income.
This requires the payment of wages. In fact, many
accountants will make sure that their clients have maximized
their C.P.P. and R.R.S.P. contributions for the year in
order to ensure sufficient future retirement benefits, even
if it costs a little more in income tax and/or payroll taxes.

On the other hand, the Dividend Tax Credit reduces the tax
payable on dividends received from the corporation, since
the corporation has already been taxed on its income.
Therefore, the accountant may recommend that the corporation
pay some dividends.

Sometimes, if the owner doesn’t require the cash, the income
is simply retained inside the corporation and tax is paid at
the lower small business rate by the corporation. If the
corporation had income in excess of the Small Business
Deduction, it likely would pay it out in wages.

Depending on the circumstances of the taxpayer, wages may be
the least expensive way of taking money out of the corporation.
Sometimes, dividends are better. Generally, a mix of both is
required.

An accountant will have to balance many factors to come out
with the optimal mix for you. He will consider your family
situation, other income sources, losses, investment and
retirement objectives, et cetera. Keep in mind that the lowest
possible tax bill for the current year is not always in your
best interests.

The Tax Planning In Buying And Selling A Corporation can eliminate most of your taxes, or raise your income taxes if the planning is not properly done in your business. Smart tax planning is essential when starting or selling a business, or corporation. There are some major key tips in the tax planning in buying and selling a corporation. Also, it’s very important to look at all aspects of tax planning when starting any business in the world. When people start their tax planning for buying and selling a corporation all sorts of things to consider pop up in their heads like capital gains, write offs, stock purchases, portfolio performance, and risk. So, let’s talk for a moment about what is going on in the heads of people that are planning to buy and sell a corporation or any business of the matter in today’s world.

Capital gains become a major thing to look at when purchasing or selling a corporation because you are ether going to have a increase on your return of investment or you are not when the business is sold. Which leads to another point in this called write offs. When people buy corporations the first thing they want to know is how much they will be able to write off as a corporation, or as a business owner of that company. Stock purchases is a great advantage to look at when tax planning before the purchase of a corporation because the better high dollar amount you get on a share the more everyone in your family is better off when the business is running in today’s economy. Many people are thinking about the portfolio performance, and risk of the corporation when tax planning. A corporation portfolio performance will always determine how your tax planning will be according to how well the company is doing and its shares in stock it’s accumulating in the near future. A tax tip to consider also in buying or selling a corporation is that they are often taxed at a lower rate and have better taxable benefits than any other business out in the world today. Now, some of you may be thinking about this question in your mind.

What Impact Can A Home-Based Business Have On Your Taxes? That’s an excellent question you asked me because theirs a few tips to consider when looking to start a home based business when tax planning in today’s world. Most people do not realize just how much money they can save by starting a home-based business. Obviously, the goal is for you to make money with your home-based business, but even if it does not turn a profit right away, you can still benefit from the mere fact that your business exists and that you are attempting to turn a profit in the business. Also, your home-based business does not have to be a full-time venture. It is something that can fit into your current daily life. You can continue to do what you are doing today, and add a home based business into your focus. Eventually, your goal can be to replace (and greatly exceed!) the income that you generate from your “job.”

The fact is that most people still struggle with finances, but there are things that you can do legally to ease that burden. If you operate your own home based business, then there are many deductions you will be able to take every year that will dramatically lower the amount you have to pay to the IRS in taxes such as home office expenses, travel expenses, entertainment expenses, depreciation expenses, professional services expenses, advertising expenses, and taking a loss. So, if that is not enough reason alone for people to start a business of their own then nothing will in your lives on this planet.

When considering any form of offshore tax planning you need to essentially wear ‘two hats’. The first hat is the UK hat, and the second is your offshore hat. You need to ensure that you consider the total tax impact, both in the UK, as well as offshore to decide whether your tax planning strategy is worthwhile or not.

Different offshore tax planning strategies

Firstly, you could move overseas. Essential to this is that you need to ensure you cease to be UK resident and ordinary resident. If you do, you can usually avoid UK Capital Gains Tax provided you’re absent for at least five complete tax years. Of crucial importance here is the overseas dimension. In particular you need to ensure that you’re not going to suffer taxes overseas or if you do you’re fully aware in advance of the tax burden you face.

When considering moving overseas, there are a number of traditional tax havens that are continually popular with tax savvy expats such as Switzerland, Monaco, Cyprus, Malta and Andorra.

Secondly you could consider using an offshore company. If you are going overseas, using an offshore company is pretty much standard practice for international trading. If though, you’re remaining to live and work in the UK it is much more difficult to use an offshore company tax efficiently, at least for UK tax purposes. That’s not to say it’s impossible, just that it will be looked at closely by the tax authorities.

There are a raft of anti avoidance rules to consider. Essentially you’ve got the best chance of obtaining tax benefits with an offshore company if you can show it’s controlled from outside the UK, and that you are either non UK domiciled or that you had a sound business motive for incorporating the company overseas. If you can achieve this, the benefits can be huge as any overseas profits will escape UK tax altogether (and in most cases any tax overseas as well). Using an offshore company in conjunction with an offshore trust (see below) can assist in obtaining these benefits as well.

Thirdly you could use an offshore trust. Offshore trusts (and their ‘cousin’ the foundation)are an old favourite for international tax planners. There’s been a global clampdown on using trusts (given the perception that they were established for tax avoidance motives) — so are they still an effective tool in reducing UK & overseas tax liabilities?

The answer — yes they are but in pretty limited circumstances. If you’re a UK citizen born and bred the anti avoidance provisions that apply to any offshore trusts you form are in some ways stricter than if you formed a UK trust. So you could find yourself in a worse tax position than if you established a UK trust. It’s not always like this though and there are circumstances where offshore trusts can still be used tax efficiently.

Most notably, there’s the position of non UK domiciliaries. Again they are in a privileged position as many of the tax anti avoidance rules don’t apply to them so they can obtain tax benefits from using trusts much more easily. There are also specific tax exemptions and opportunities for trusts that are for income tax avoidance only (as opposed to capital gains tax avoidance) or where close family won’t be listed as beneficiaries.

Offshore trusts are however still popular for people coming to live in the UK. Settling overseas assets into an offshore trust before obtaining UK residence or domicile status can lead to big tax savings in the long term (particularly in terms of inheritance tax).

Uncle Scrooge will want to take a dip in your dollars when we are done with you. Comprehensive financial planning implies attention to detail. In this article, we will take you through 8 aspects of finance that you must attend to.

Savings Plan: Common sense calls for one. Decide what portion of your earnings you would like to save for needs like a college fund for your children, your own house, a health plan to meet any emergencies etc. The idea is not to reserve funds for every possible event, but to ensure that the inevitable is provided for, while also gearing up to deal with surprises.

Wealth Management: Follow a simple strategy – examine your spending, reduce your debt, save, invest in tax deferred savings, determine your long term goals and assess your risk tolerance. Diversify your investments and employ techniques such as ‘dollar cost averaging’ which will reduce impact of market fluctuations. If you have debts outstanding, then managing them is vital to comprehensive financial planning. We recommend to find all the information you need about managing loans of all kinds.

Tax Plan: Taxes often change with successive governments. You cannot foresee all changes, but stay alert to news of tax increases, cuts and exemptions. If you are smart with your moves, taxes will never get the better of you. Tax planning is important both from a personal and business point of view.

Retirement Plan: Start early, plan ahead, invest accordingly. Consider options like an Individual Retirement Account (IRA); if you’re switching jobs, rollover your pension fund from the previous establishment and most important, resist withdrawing prematurely. Look at the product line of to know all you need about the 401(k) rollover plan and other retirement schemes.

Cash Management: Holding on to your cash to meet unforeseen expenses and current obligations, or maximizing investment in liquid instruments may offer comfort, but cash at hand is an idle asset which earns nothing. Good cash management involves accurate budgeting and forecasting of cash flows, borrowing short term when required and investing surpluses as they arise. This applies equally to business. Create a trading budget covering sales, production, material, labor and other costs. Optimize cash flow by balancing credit terms on sales and purchases, financing working capital expenditure and making adequate provision for taxes. Bank overdrafts and short term loans could be used to raise additional funds when needed.

Estate Management: Managing your property investments well is crucial to good financial planning. Although the type of property may differ, depending on whether it belongs to you or the business, you should still look at it as a financial asset. Critically analyze what it cots you to maintain, and whether you can make an income from it, such as leasing it out. Unless it’s a home that’s been in the family for generations, you should always keep your options open to selling property when the market is on a high. Again, wait for cyclical downturns before making a purchase. And finally, ensure you have insured your property against the usual risks. Books could help clear all your doubts about the legal aspect of managing your estate finances.

Investment Advice: Experts don’t exist for nothing, use ‘em. A diverse financial portfolio is pivotal to comprehensive financial planning. Managing such a portfolio on one’s own is tough. This responsibility should be entrusted to reputed investment advisors who could manage your portfolio, diversify investments, minimize risks and most importantly, personalize it to suit your financial goals.

Risk Management: This is a crucial aspect of comprehensive financial planning. Everyone is looking to maximize returns, and therefore, will have to deal with the higher risk. Making allowances for losses on investments is an absolute must in the financial planning process, whether it is for an individual or a company. A diverse portfolio including stable investments like government securities and other risk weighted options will optimize the risk versus return equation.

Comprehensive financial planning, as you can clearly see, requires you to examine every aspect of your finances, be it your personal expenses, those of your enterprise or your dependents. Paying close attention to these details will reflect in your finances.