Year-End Tax Tips for 2010

Listen up as this small-business expert offers some 2010 tax advice you can still take advantage of.
By Cliff Ennico

ASK KIM

Trim Your Energy Bill and Your Taxes

By Kimberly Lankford

I read in Kiplinger's a few months ago about a tax break for window replacement. I am looking at replacing all of my windows and wonder if I should wait until 2010.

Waiting until the New Year could save you some money.

The Energy Tax Act of 2010gives homeowners tax breaks for making energy-efficient improvements after January 1. You'll be able to claim a 10% tax credit for the cost of buying and installing efficient new windows, doors, skylights and insulation. You can also claim a credit for installing certain efficient hot water heaters and central air conditioning systems and more. See the table below.

improvement credit
Purchase and installation of energy-efficient windows, doors, skylights, insulation, metal roofs coated with heat-reducing pigments. 10% of cost up to $500 ($200 max. for window expenses)
Advanced main air-circulating fans $50
Qualifying natural gas, propane or oil furnaces or boilers $150
Qualifying electric or geothermal heat pumps $300
Solar water heating equipment and installation (as long as it isn't used for swimming pools or hot tubs) 30% of cost, up to $2,000
Fuel cells to supply electricity 30% of costs, up to $500 for each 0.5 kilowatt of capacity

As the end of the year quickly approaches, many of us are too busy to even think about tax season. But there's still time to squeeze in a few more dollars of tax savings before the crystal ball drops in Times Square.

Here are some specific tips that may save you money come April 15:

Bill late, and give clients a discount for late payments. No, I haven't lost my marbles. Wait a little while before you send out your December invoices--this is the one time a year when it pays to be a little lazy. Since most of your clients want to pay you before December 31, why not offer them a discount for paying after January 1? You can even generate some positive PR by telling your clients it's your "holiday gift" to them for being such wonderful clients during the year.

Buy lots and lots of equipment. Section 179 of the U.S. tax code allows you to deduct up to $105,000 worth of machinery and equipment if you "place it in service" before December 31. If you're thinking about upgrading your computer equipment, or trading up to a new pickup truck, now's the time.

Hire your kids. Got a son or daughter home from college for the holidays? Put 'em to work! Your child will have to pay taxes on the money you pay them only to the extent it exceeds the standard deduction (currently $5,000). But even if they have to pay taxes, they'll pay at a much lower rate than you will. Also, if your kids are under 18, you don't have to pay Social Security or Medicare taxes on what you pay them (with a few minor exceptions).

Add up your home office expenses. Taking the home office deduction? Remember that you can deduct a fraction of just about every household expense. Maybe it's time to have someone else put up the holiday decorations and pay them to do it. Or have the carpets cleaned. Or have the pine trees in the back yard pruned. Or . . .

Upgrade your business books. Have you recently upgraded to Excel 2007, only to realize your copy of Excel 2003 for Brain-Dead Morons is now obsolete? Business books are deductible, so buy new ones now. You can also take the old ones to your local library and donate them by December 31 so you can take a 2005 charitable deduction for the value of the books. Be sure to get a receipt signed by the librarian.

Pay your 2010 expenses now. Why not pay your accountant now for preparing your 20010 tax returns? If you know you'll incur expenses in January or February of next year, why not ask for an invoice now so you can pay it by December 31?

Take the "eggnog" deduction. You can write off up to $25 per person for holiday gifts to "business associates," while a holiday party to thank your employees for a job well done is fully tax deductible.

Open a retirement plan. If you don't have a retirement plan currently in place, or if you have a SEP-IRA and want to contribute more each year to your retirement fund than a SEP-IRA will allow you to do, now's the time to set up a new Keogh or solo 401(k) retirement plan. If you do it by December 31, anything you contribute to the plan up to April 14, 2010, will be fully tax-deductible for the 2010 tax year up to the limits the tax code imposes.

One last thing. It's tempting, I know, but you really shouldn't backdate checks "December 31" that you actually write in January. Under a recent federal law designed to speed up check clearing at your bank, the chances of getting caught for this are a lot greater than they used to be, so don't do it. Besides, Santa's watching . . .