With Christmas near, the official "end of the year" countdown for many people has begun. For business owners, that means gathering records, filling in holes in the paperwork or accounting data, and beginning to get ready for the upcoming tax season.

But if you think it's too late to do any tax-planning for 2006, I've got good news for you: you're wrong. There are plenty of things you can still do to save on taxes before the New Year's Eve party begins. Here are five tax tips to get you started:

Tax Tip #1 - Check Your AMT Status
The current temporary increase in the AMT (alternative minimum tax) income exemption threshold (the amount you can earn before you need to test for AMT status) is set to expire on December 31st. If this happens the AMT threshold rates will go back to the 2001 levels, which are thousands of dollars lower than they are right now. That means millions of middle-income American taxpayers could be looking at a new way of calculating income taxes, along with a higher tax bill. Traditionally Congress enacts temporary legislation each year to raise the AMT threshold. However, the balance of power in Washington has changed, and the Democrats have traditionally been supporters of the Alternative Minimum Tax (AMT).

If you're caught in the AMT trap, traditional tax planning won't really work for you. That's because of the way AMT is used to calculate your taxes due. However, you aren't completely helpless, either. Two powerful AMT solutions include starting your own business, and putting as much money as possible into a 401(k) plan. I'll have more on AMT and ways to avoid it early next year.

Tax Tip #2 – Start a Business
If you don’t have a home business, consider starting one before December 31st. Are you an independent contractor realtor (hint: if you receive a 1099 instead of a W-2, the answer is "yes")? If so, and you aren't operating through a business structure, then you've already got a ready-made business! Converting your real estate practice into a legal corporation or an LLC is an excellent way to pick up all kinds additional expenses that these business structures both provide. You can even get some relief from AMT if you run your income through a business.

Tax Tip #3 – Employ your Kids and Other Dependents
If your kids are looking for Christmas cash, try to employ them in your business instead of doling out money. The income you provide your kids is a tax deduction for your business and the chances are your kids are in such a low tax bracket they won't have to pay much, if any, income tax. It doesn't have to be your children, either. Aunts, uncles, cousins, parents, or even non-related friends can be employed. Just make sure you stick to the three employment rules for kids or other dependents: (1) have a written job description, (2) make sure everyone keeps an accurate time-sheet, and (3) keep salaries in line with current market rates and their individual abilities. Paying your 6 year-old $30 per hour to take out the trash may not wash with the IRS.

Tax Tip #4 – Review When You Spend Money
Many people don't realize just how many potential business expenses there are. If you have a legitimate business, your car, travel plans, cell phone, computer, Internet bill and more all become potential deductions. The rule of thumb question is, "Is this an ordinary and necessary business expense for the production of income?" If you can answer "yes," you've probably got a deduction!

Tax Tip #5 – Update Your Business Records
The more current your business records are the more power and control you'll have over business deductions and tax savings. For example, some payroll deductions are income linked, meaning once you hit a certain threshold you no longer have to withhold them. Social Security is one example, state unemployment insurance another. How will you know if you've contributed enough to Social Security if your payroll records are 3 months out of date? Make sure your business's records are up to date and avoid overpayments. After all, that's money better spent in your pocket.

These are the first 5 of 25 tax tips I set out in a Special Report that you can download for free, at www.taxloopholes.com/RealEstateAgents. This report also contains the TaxLoopholes 300+ Potential Business Deductions list. Review both of these today, and see where you can save money before the year is over.

Published: December 20, 2006

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