Tax Planning Strategies and Tax Incentives for Montana Businesses
Everyone knows that taxes are a fact of life. Individuals and businesses both have to take steps to ensure that they only pay the taxes that they have to. Unfortunately, many businesses and individuals don’t know all of the strategies or tax incentives that are available to them, and as a result they end up paying more taxes then they have to. By taking a few simple steps you can save yourself, and/or your business quick a bit of money come tax time. This article will examine what you can do throughout the calendar year, and what you can do at the end of the tax year to reduce your tax liability dramatically.
Keeping Records of All of Your Expenses
Detailed records of all your business or personal expenses are important for when you file your tax return. Not only do detailed records help you fill out tax forms, they can also be used to remind you what you spent during the year. While you may think that simply keeping a receipt of every major purchase is enough of a record system to meet your filing needs, you would be surprised at how incomplete and inadequate this type of system is. By simply using a collection of receipts you may be missing a large portion of potential deduction because a receipt is misplaced, it has faded beyond legibility, or your expense didn’t give you a physical receipt. Your best bet it to create a recordkeeping system that involves both filing physical receipts, and that includes a written or electronic log.
This dual approach will help you keep track of charitable donations that you make throughout the year; it will help you track out of pocket expenses that may not have resulted in a good receipt; and it will help you to document where an item was purchased, how much it cost, when you bought it, and what the item was for. You may be thinking that a receipt would cover all of this information, but that is not necessarily true. For example if you make a cash donation at a Salvation Army bucket, you don’t get a receipt; if you give a gift of money to a relative you don’t necessarily get a receipt; and if you travel for business your gas receipt is not enough for tax purposes. In all of these situations a notation of some type is needed in order for you to deduct these expenses from your tax liability.
Charitable Contributions
Charitable contributions are commonly deducted from the average person’s tax liability, however, few people really understand what type of documentation they need to have for their contributions in case of an audit. For the casual donation of less than $250 your documentation does not have to be too sophisticated. If you put a few dollars into a donation jar or Salvation Army bucket a handwritten note about when, where, how much, and for what organization the donation was for is enough documentation for your donation. If your donation was larger than a few dollars then a cancelled check is sufficient proof of your donation. If you gave a cash donation then a receipt from the organization is fine to use as documentation of your contribution.
If you gave one large donation, over $250, to a single organization then you will need written documentation from the organization as well as a cancelled check. The IRS will not except the cancel check alone as proof of the charitable contribution. You may wonder why this is? The answer to this question is that if a person is paying a charitable organization an amount over $250 they could be purchasing something from the organization instead of making a contribution, and the documentation is needed to verify that the money paid to the organization was given in its entirety as a donation and not as a payment for merchandise or services.
If you donate something other than money to a charitable organization then you will need to obtain or produce some kind of documentation of the value of the non-monetary items that were donated. For example, if you volunteer for an organization you can write off your mileage that is connected with your volunteer services. To document this you can keep a travel log including how far you drove, where you drove, why you drove, and for what organization. You can also log money you spent of food that you donated to feed volunteer workers. If you donate furniture, clothes, or some other non-monetary item that is worth less than $250 then you will only need to keep a log of what was given, to whom, when, at what location, and its approximate value. If your non-monetary items were worth between $250 and $500 then you will need to get a written receipt from the organization, and if the value is worth over $500 then you will need to fill out form 8283 which will require additional information about the organization and your donation.
Mileage
With the rising price of gas during the 2005 year the mileage rate that is deductible as a business expense, as a charitable contribution expenses, as a medical expense, or as a moving expense increased in the middle of the year. As a result you will be able to increase your total deduction by 8 cents a mile for the mileage that you logged between 09/01/05 and 12/31/05. The rate for 01/01/05 to 08/30/05 was 40.5 cents per mile for business mileage, 14 cents per mile for charitable contributions, 15 cents per mile for medical expenses, and 15 cents per mile for moving expenses. From 09/01/05 through the end of the year these rates increased to 48.5 cents per mile for business expenses, 14 cents per mile for charitable contribution expenses, 22 cents for medical expenses, and 22 cents per mile for moving expenses.
Take Advantage of Montana Tax Incentives
In addition to the above tax tips that you can implement to help save you on your tax bill, the state of Montana also has tax incentives that you can utilize to help save you on your state income taxes. For example if you make a charitable contribution to one of the state’s colleges or universities’ endowment fund, then you can deduct 10% of your contribution up to $500. To claim this tax credit you will need to fill out and file Montana form CC when you file your annual Montana Income Tax Return.
If you utilize an alternative fuel source for your business vehicle then you may also qualify for the Alternative Fuel Credit. To qualify for this credit you will need to document the expenses related to converting a Montana registered motor vehicle to use an alternative fuel source. You can claim up to 50% of these costs up to $500 for a vehicle under 10,000 pounds and up to $1000 for a vehicle over 10,000 pounds. To claim this credit you will need to fill out and file Montana form AFCR.
If you are a physician, you may want to consider the tax benefits of locating your practice in a rural area. The state of Montana offers physicians a tax credit up to $5,000 a year for the first four years of residency for physicians who set up practices in areas that 30 miles from the nearest 60 bed hospital. In order to claim this credit the physician will need to practice in the rural area at least nine consecutive months in the tax year the credit is claimed.
If you provide health insurance to your employees, and have been in business 12 months, and if you have employed 20 or fewer employees who each work at least half time (20 hours per week) then you will qualify for the Montana Health Insurance for Uninsured Montanans Credit. This credit is worth $25 per month per employee if you pay 100% of the health insurance premium, or if you pay only a portion of the premium amount the credit will be based on that proportion.
