Change Your Tax Planning Before It Is Too Late

The IRS and Congress would love for you to keep tax planning the way you always have. It means more money for them to spend and bail out those "too big to fail" businesses. Well if you're fed up with them using your hard earned dollars for big business, read on to learn how to keep more of your money with a completely new approach to tax planning.The basics of tax planning in the past were pretty simple. You'd try to push income to the next year and get as many deductions in before the end of the year that you could. It kept your tax bill low.The idea was that if tax rates were somewhat stable, as they have been, then if you can push income to next year you don't have to pay tax now. And if you can get more deductions in before the end of the year, you can reduce your tax liability for this year.One of the ways this was done by many was through the Section 179 deduction. When buying a piece of equipment that would need to be depreciated over several years, an election could be made in your tax return to write it off all in one year. The effect was to take all those future deductions and pull them into the current year.It was like candy and everyone wanted some. The government eventually raised the limit so that if you bought $250,000 of equipment (or less) you could write it all off in one year. As long as tax rates stayed steady or were going down it was a reasonable strategy.Politics and the economy are changing and most believe tax rates are going up in either 2010 or 2011. Deficits are out of control and government debt has reached astronomical proportions. Taxes will go up. This means our tax planning strategies have to change.Pushing income forward will get it taxed at higher rates, perhaps much higher rates. Pulling deductions into the current year, via Section 179 or other methods will result in a much lower benefit than letting the deductions fall into the higher rate years.I know that we all want every deduction we can get. The government is strangling small business with regulations and taxes of so many types and kinds that it is hard to imagine. Nonetheless, you can still have the deduction, but take it in the higher rate year.The planning point for 2009 tax returns is to challenge your tax preparer as to the wisdom of taking Section 179 deductions on those returns. You may get far more benefit by allowing equipment to be depreciated over the next 3 to 7 years with the inevitably higher tax rates. Undoubtedly the IRS would love for you to take the Section 179 on your 2009 return so they can collect more tax from you next year with the higher tax rates.There are many other issues to consider in your tax planning but hopefully this one will get you started thinking about how to tax plan in our new economy. by Steven Schlagel