I don’t know if it’s just our clients bucking the trend, or a sign of disconnect between mainstream media and business owners, but a funny thing happened in 2010. People made money. How much they made varied from person to person. Some clients reported modest increases in their income, while others hit home runs, but still, the message we got from our clients was pretty consistent: 2010 was, at the end of the day, not a bad year at all.
The odd thing is, this success seems to have taken most of our clients by surprise. Maybe it’s been the constant stream of bad news or maybe the monthly unemployment rates. It’s been hard to stay positive this year, when simply keeping the doors open and the lights on each day is a win. But I guess business owners and investors have kept at it, in spite of all the press. And maybe even the mainstream media is changing its tune. I saw a positive story on Fox News a couple of days ago, that said the same thing – business owners across the country are reporting better numbers than expected, and are even planning to add employees in 2011. So if what is arguably the most conservative media outlet is reporting good news, then maybe we have turned the corner.
Even so, I don’t think all of the jobs lost are coming back. What I hear from business owners is that they survived by cutting expenses and overhead, and finding better, cheaper ways to do business. Technology has changed so much of what we do today. It seems astonishing to me that in my first office job I used an electric typewriter and we had a teletype machine (because fax machines were non-existent). Today, I think we’ve got more computing power in our cell phones than NASA had for its first moon launch, and with the blizzard of communications technology, you can run your office anywhere in the world, as long as you can get a cell phone signal. I think businesses will add staff in 2010, but strategically.
Coming back to our clients, the #1 question they’ve had for us in the past 2 months is, “I made more than I thought … and I didn’t plan for the extra income. Now what?? And, while it’s getting late in the year, there are a couple of things you can do to try and shelter some of that income from hungry tax collectors.
- The first thing you can do is get a pension plan set up before the end of 2010. The nice thing about pension plans is that they don’t usually need to be funded right away. IRAs can be funded up to next April, and if you are able to establish a Solo 401(k) plan, you have, in theory, up to next October to actually pay in your 2010 contributions.
- Next up, is pre-payment of expenses. We’ve had that question from several clients: what can I pre-pay now? Typically, the rule of thumb on pre-payment of expenses is that it works best with regular, recurring expenses. So you could pre-pay your car payment and phone bill, for example. Don’t try to pay too far out though. We usually suggest about 3-4 months pre-payment.
- The last of 2010 payroll taxes will be due to the IRS on January 15th. Prepaying federal taxes won’t get you any benefit … but prepaying state taxes will. If you can make your state tax payments prior to the end of 2010, you can take them as a deduction on next year’s return, instead of waiting until your 2011 return.
If you’re in this situation, congratulations. Count your blessings, and give yourself a pat on the back for getting through a really rough economic ride. Then, perhaps you might want to give us a call (888.592.4769) or an email (Richard@USTaxAid.com) and see if we’ve got a tax plan that will help you to continue the savings in 2011.