Year-End Tax Planning (Part IV)
12/22/2003
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7. The 529 plan is another great tool to save tax, transfer assets and fund your loved ones’ college education. We will discuss education plan in detail in the near future. To take advantage of 529 Plan, you will need to take action before December 31 to fund a 529 plan’s contribution for 2003.
8. If you have participated in your company’s flexible spending plan, be sure to exhaust your 2003’s account before the year-end.
Why? Recall from our Sept. 1st’s Tip, employees’ flexible spending account is a “use it or lose it” game for your pre-tax dollar. Therefore, if you still have balances in your flexible spending account, schedule a doctor or dentist visit or fill any prescriptions before the year-end.
IRS recently ruled that the costs of even non-prescription drugs, such as cold medicines and pain-killers, are eligible to be reimbursed under a health flexible spending account. Hope that new ruling also kills the possible pain of losing your hard-earned money – dig out your over-the-counter spending on those kinds of medicines during the year and get your own money back. (Some plans may have to wait until the new year to take advantage of the new ruling – check with your company’s HR department to find out if your plan is eligible in 2003).
9. If you run a business, we have good news for you. The 2003 new tax law includes an expansion of allowance for a 50-percent first-year bonus depreciation for new property placed in business after May 5, 2003. This is allowed as an alternative to the 30-percent first-year bonus depreciation enacted by the Congress in 2002 for certain properties placed in business after Sept. 10, 2001.
The bonus depreciation allowances are also available for vehicles to be used in a trade or business. Furthermore, it’s applicable to both regular tax and alternative minimum tax. Equally important, because the bonus depreciation is not prorated, qualified property placed in service before or on December 31, 2003 will be eligible for the whole bonus this year.
More good news: For certain “personal properties” used in business, the eligible amount for immediate “depreciation” is increased from $25,000 to $100,000 for 2003. If you plan to invest in this kind of property in the near future for your business, consider getting them before the year-end to enjoy that great “write-off” for the year right away.
But you do need to consider the limitations imposed by the tax code such as the total assets acquired during the year and your business’ net profit – there are legitimate games to play to maximize your overall tax efficiency as well as your cash flows and return on assets.
This ends our year-end tax planning series. If you have any questions, please feel free to call us at 314-997-0992 or 1-800-327-7704.
Happy New Year!
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