Planning now for your 2006 tax season

you should make before December 31^st. At Groen, Kluka & Co. we are committed to helping you tax plan in the most cost effective way. And before 2006 arrives, there might be opportunities to identify tax savings based on your personal situation.

The first step is for our firm to make a projection of your income, as well as tax deductions and credits. If the projection shows you will be liable for the alternative minimum tax (AMT), there might be steps you can take now to reduce your tax bill.

For example, it's generally a good idea to reduce your adjusted gross income by contributing the maximum amount allowed to a retirement plan or traditional IRA.

One thing you probably don't want to do is prepay some of next year’s property tax and state income tax bills because these expenses are disallowed in computing the AMT.

Who is liable for AMT? The calculations are complex but taxpayers with certain items on their tax returns are likely to trigger the tax. For example, you have a greater-than-average chance of owing AMT if you exercise incentive stock options, claim many dependents, pay a fair amount of state income tax, or have large long-term capital gains.

There are many ways to prepare for corporate tax issues as well. A Groen, Kluka & Co. tax projection may show that you will have a taxable loss from your S corporation, and need to inject some cash into the company in order to have sufficient basis to deduct the entire loss on this year’s return. 

The reason is that S corporation shareholders cannot deduct corporate losses that exceed their "basis" in the stock they own. Basis is equal to the amount of the your investment in the company, with some adjustments.