Issue link: https://www.massageandbodyworkdigital.com/i/68165
Many taxpayers miss out on important deductions by waiting until the last minute. This is universally regarded by financial experts as one of the most important tax-savings techniques. "When you've got a stack of bills, it's easy to forget the person you should be paying first—yourself," Crawford says. "I don't mean a salary. I mean contributions to your retirement account, even if you can only manage $50–$100 each month. And don't wait until next year, hoping that you'll have extra cash; you want to ride that line of compounding interest as long as possible." 7. MAKE CHARITABLE CONTRIBUTIONS If you plan to make charitable contributions this year, consider donating long-term appreciated securities instead of cash. You'll receive a full fair market value deduction and pay no capital gains tax on the securities. Or sell depreciated securities for the tax-deductible loss and then give the cash from the sale to charity. 8. CONSIDER CHANGING YOUR BUSINESS STRUCTURE Are you operating your practice as a sole proprietorship? "Many professionals operate their practices as sole proprietors, unaware that net profit from a sole proprietorship is subject to self-employment tax," says enrolled agent Karla Dennis. "Self- employment tax is comprised of Social Security tax and Medicare tax. The Social Security tax rate is 12.4 percent and the Medicare rate is 2.9 percent. By switching to a corporation or a subchapter S corporation, a business owner could eliminate a great chunk of this tax." Dennis points out that when switching to a corporation, the owner must take an adequate salary and pay the appropriate employment taxes. "But this will be far less than exposing all net income to Social Security and Medicare taxes," she says. "Medicare is taxed against all income and never caps out. The Social Security tax stops when your net income reaches $106,800." 9. BALANCE INVESTMENT GAINS AND LOSSES Keep a close eye on your personal investments during the year. By selling appreciated assets and liquidating under-performing investments, you may match gains and losses to minimize your personal income taxes. If you have sufficient losses to offset your gains, you may deduct the losses on sales completed by December 31. Note, however, that the amount of capital losses that you can use to offset ordinary income is limited to $3,000. If your net loss totals more than $3,000, you may carry losses over $3,000 forward every year until you use them up. 10. CLAIM THE NEWCOMER If you're expecting the stork to visit your house this year, remember to obtain a social security number for babies born in 2010. Put the newcomer on your personal tax return to receive the benefits of claiming the child as a dependent or claiming head of household status. 11. PREPARE TO PAY TAXES QUARTERLY If you file a Schedule C to report your earnings income, you are likely required to pay your taxes in quarterly installments (in April, June, September, and January). If you wait until April 15 to pay your bill in full, you may be in for a surprise about the total amount due. Failure to make quarterly payments on time can result in a penalty and interest charges on the amount you didn't pay on time. Your tax professional can help you by preparing estimates of how much you will owe each quarter for both your federal and state taxes, so you can set aside money to make those payments in full and on time. 12. VALUE YOURSELF Many bodywork professionals are good community members who donate some of their time and expertise to charities. "The cost of your time for those efforts is not deductible," Crawford says, "but any expenses associated with rendering the services are. So if you do any work for a nonprofit, the cost of travel is deductible. So are photocopies, long distance phone calls, or office supplies directly related to the charitable service you render." Keeping your annual contribution to Uncle Sam to the legal minimum is the smart way to increase your after-tax dollars. Getting an early start on the task and keeping tax reduction in your plans all year long is a basic requirement for solid practice management. consultant and corporate executive who writes on business and financial topics for a number of consumer and trade publications. His latest book, Money: How to Make the Most of What You've Got, is available through bookstores. You can reach Lynott at wlynott@ cs.com or www.blynott.com. William J. Lynott is a former management connect with your colleagues on massageprofessionals.com 75