Five Rules to Survive Tax Season at Catch a Gideon

January 12th, 2007 by digerati

Taxes may be one of life’s certainties, but the rules governing them always seem to be changing. New rules from 2006 include the Pension Protection Act, and others affect everything from phone bills to 401(k) plans.

Here are 5 rules (from Inc Magazine) to help maximize returns on your taxes.

1. Dial up deductions. The government has finally decided that 3 percent taxes on long distance bills (put in place during the Spanish American war to offset war costs) is a little outdated. The Treasury canceled the tax in May, and the IRS is now offering refunds (via tax credits) to companies and individuals who paid these taxes on landlines, cell phones, or voice over IP (VOIP) phones in the past three years.

File for a credit by submitting IRS Form 8913. More information is available at this IRS page.
2. Go paperless. Last year the IRS required large companies to file electronically. This year, companies with $10 million or more must file electronically. The electronic system will automatically reject vague terms like “various” rather than exact dates and numbers. This means the returns may take an extra few days to get right, so don’t wait for the last minute.

3. Make 401(k)s a must. Retirement plans encourage employees to save, but can also reduce the company tax bill; the more employees save in their plans the better. The new Pension Protection Act allows employers to automatically deduct 401(k) contributions from paychecks, starting next year. Currently employees must sign themselves up for the plans. The maximum automatic contribution is 3 percent per year.

4. Come clean. This past summer new rules were passed governing tax disclosures on financial statements. Previously, companies could omit disputed tax bills on reports sent to creditors. Now companies likely to lose disputes must disclose the amount in question. It’s a vague rule, but should force companies to give a more accurate view of their financial health.

5. Stay in the US. 2005 brought the domestic manufacturing credit in an attempt to slow outsourcing to other countries. This year the credit is worth 3 percent of a companies net income. Next year it will double to 6 percent. Manufacturers aren’t the only beneficiaries, companies that make software, music, or films, and companies in construction, engineering or architecture firms, and producers of electricity, natural gas, or drinking water. You’ll need to file IRS Form 8903. This should allow these types of businesses to pass savings along to the shareholders.