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April 15 is fast approaching, but there's still time for some last-minute moves to help trim your final tax payment.
For example, if you haven't already done so and your retirement plan allows it, be sure to make a contribution by April 15. Contributing to a retirement account, such as a Simplified Employee Pension (SEP) plan, is an easy way to help lower your tax liability for 2004. The IRS gives you until your business tax deadline (plus extensions) to set up an SEP and make a tax-deductible contribution. An SEP allows you to make a larger deduction than an IRA does. It's possible, for example, to contribute up to 25 percent of the first $205,000 of compensation, subject to the contribution maximum of $41,000, whichever is less.
If you are a sole proprietor and file a Schedule C on your individual tax return, the latest tax law, known as the American Jobs Creation Act of 2004, provides a new provision that may be beneficial if you live in either a low- or no-income tax state, such as Florida, Nevada or Texas. Under that law, individual taxpayers have the option of claiming an itemized deduction for either general state and local sales taxes or state and local income taxes, but not both. The provision is available for 2004 and 2005.
If you spent money outfitting leased business space in 2004, see if you can take advantage of a new depreciation rule for these leasehold improvements under the 2004 law. Prior law required the depreciation to be taken over a 39-year period. The new rule provides for a 15-year recovery period for qualified leasehold improvements to nonresidential real property, such as office buildings and retail spaces, placed in service after October 22, 2004 and before January 1, 2006. Improvements include those done to the interior of a building, such as walls and floors. "There are a number of requirements that have to be met to qualify for this break, but it is worth checking into for the potential tax savings," says Mel Schwarz, a director at the Washington, DC, National Tax Office of Chicago-based accounting firm Grant Thornton.
A final note of caution when preparing your 2004 return, says Schwarz: "Be sure you and your accountant have selected the right elections and made the right calculations. It could make the difference between a refund and having to pay the IRS."
Great Falls, Virginia, writer Joan Szabo has reported on tax issues for 18 years.