There are many types of contractors. The list is not all inclusive:

• Real Estate Developers
• Concrete
• Electricians
• Home Builders
• Landscape Design
• Engineers
• Architecture
• Plumbing, etc….

Every year December 31st seems to sneak up on us. Beginning the process of year-end tax planning is essential. Tax planning has the ability to provide the taxpayer with an estimate of potential tax liability. Common goals may be tax deferrals and reduction. There are various ways to achieve desired results. The Jobs and Growth Tax Relief Reconciliation Act of 2003 helped to facilitate tax planning.

It is common for Contractors to have the necessity of assessing future need for equipment. A very significant item of the new tax act for contractors is in the depreciation changes. Internal Revenue Code Section 179, has been modified. A taxpayer may deduct as an expense, rather than depreciate, a specified amount of the cost of certain qualifying personal property. Acceleration of equipment purchases prior to year end may allow the taxpayer to enjoy significant write-offs.

Another method to reduce income tax liability while providing owner and employee benefits is through qualified plan contributions. A qualified plan contribution can be made by the extended due date of the federal income tax return to qualify for a deduction in the current year. There are two types of qualified plans. Defined Contribution has a set limit for contributions. In 2006 the maximum an individual can defer in a qualified account is 15K (not including catch-up for those that qualify) and the account cannot exceed 44K by other contributions for the year. That is combined employer and employee contributions.

The other type of qualified plan is called a Defined Benefit Pension plan which does not contain contribution limits. Depending on the size of the company and revenue, maximum owner tax deduction and retirement benefits may be realized through a Defined Benefit Plan. The contribution will be determined by a formula taking into consideration the desired Benefit within IRS guidelines at Retirement In general the closer an Owner is to retirement the larger the contribution will be. Therefore more tax deductibility and retirement savings. See 412(i).

A feasibility study can help to determine the right qualified plan solution based upon desired goals.

Other planning issues may include those listed under the Business Section:

Business Succession Planning
Retention of Key Employees
Buy-Sell Arrangements
Disability

The above information is designed to be general in nature. Nathan Simmons Wealth Solutions does not provide tax or legal advising services.