• Tax-Free Commuting: The tax code allows employers to provide tax-free payments or reimbursements to employees for certain commuting expenses. For instance, an employee may currently receive mass transit benefits of up to $115 per month. Similarly, employees can benefit from carpooling or vanpooling in a qualified company-owned vehicle. The maximum tax-free monthly benefit for this tax break is $115 per employee. Both of these fringe benefit amounts are adjusted for inflation on an annual basis.



• Alternative Motor Vehicle Credits: Business taxpayers may qualify for a special tax credit for acquiring a vehicle that meets specified requirements. This includes the use of hybrid vehicles. The amount of the hybrid-vehicle credit, which ranges according to the vehicle’s fuel economy, may be as high as $3,400. Caveat: The credit for hybrid vehicles begins to phase out when the manufacturer has sold more than 60,000 vehicles.



• Home-Office Deductions: Instead of having employees drive to work every day, you may allow them to work from home all or part of the time. This generally reduces your company’s overhead expenses. Furthermore, an employee may qualify for home-office deductions if he or she can establish that the arrangement is required for the employer’s convenience. The optimal means is to spell out the requirements for stay-at-home employees in writing.

• Energy-Tax deductions: Under the energy-tax law passed back in 2005, the owner of a commercial building may claim a deduction for certain energy-saving improvements. This tax break, currently scheduled to expire after this year, is available for improvements that achieve a 50% energy reduction for a targeted type of building. The deduction is equal to $1.80 per building square foot, although you may qualify for a lesser deduction of $0.60 per square foot under certain circumstances.



• Hazardous Site Deductions: Normally, environmental cleanup costs must be capitalized and added to basis. But there is a special exception for the cleanup of hazardous materials located at qualified sites. A business may be able to claim a current deduction for qualified expenses. As the law stands now, the deduction is limited to expenses paid or incurred before 2008, but this tax break may be extended by subsequent legislation.

Finally, there is no other “official” deduction or credit for buying other energy-efficient property. However, that does not mean you cannot derive tax benefits for such purchases. For example, if qualified assets are placed in service in 2008, they are eligible for both the enhanced Section 179 deduction, the 50% bonus depreciation and the regular Modified Accelerated Cost Recovery System (MACRS) deductions. The maximum Section 179 deduction for this year is $250,000.

Who are the beneficiaries of your estate? For many entrepreneurs, it is typically a combination of a spouse and children. However, part of the net worth you intend to pass to your loved ones could be eroded by estate taxes. Fortunately, you may be able to shelter your estate from tax through a “credit shelter trust” (also called a “bypass trust”).

Background: Thanks to the unlimited marital deduction, any transfer of assets from one spouse to another is completely exempt from federal estate tax. Furthermore, for decedents dying in 2008, up to $2 million of assets can be effectively sheltered through the credit known as the estate-tax exemption. This exemption amount increases to $3.5 million for 2009.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the federal estate tax is scheduled to be eliminated after 2009, but it is then scheduled to be reinstated in 2011. By using a credit shelter trust, you may transfer a sizable amount to your heirs by combining the marital deduction with the federal estate-tax exemption.

Example: William Marx, a successful business person, owns assets currently valued at $4 million. Under his will, all of the property is to be transferred to Susan, his spouse. Assuming that William dies in 2008, the assets pass to Susan free of estate tax under the unlimited marital deduction. But the exemption for William’s estate goes to waste. For instance, should Susan die in 2009, the exemption for her estate can shelter $3.5 million. The remaining $500,000 (adjusted for investment performance) is subject to estate tax.

Possible Solution: William could leave half of his estate, or $2 million, to Susan outright and transfer the other half to a credit shelter trust. For instance, this can be accomplished by establishing the trust in his will (i.e., a testamentary trust). There are two common methods:

1. The will can provide that the income from the trust is to be distributed among the surviving spouse and children.



2. If there is concern about a surviving spouse’s financial security, trust income can be paid to the spouse for life.

Going back to our example, the $2 million transferred to the trust is sheltered by the estate-tax exemption for William’s estate. It bypasses Susan’s estate completely. And when Susan dies, there is no estate tax on the $2 million she leaves to the children. Net Effect: With the credit shelter trust, $4 million is transferred estate-tax–free.

Q. How much do you need to save?
A. The short answer often provided by financial experts is that you need to set aside enough to produce between 70% and 80%, or even 85%, of your current income. But that is an over-simplification. In reality, the amount you must save depends on a variety of factors, including your objectives, projected living expenses, your expected retirement age, health status and the return/risk ratio of your portfolio. Have your personal situation assessed.

Q. When do you intend to retire?
A. Early retirement may be a dream of yours. But you may have to raise your savings goals or lower your expectations—or both. For instance, if you retire five years early, you might plan on generating enough income to sustain you through, say, 30 years of retirement instead of 25. (These figures are purely hypothetical.) In addition, consider the tax consequences of retirement-plan distributions. Withdrawals made prior to age 59½ are generally subject to a 10% penalty tax in addition to regular income tax.

Q. How does early retirement affect Social Security benefits?
A. The earliest point at which you can apply for Social Security retirement benefits is age 62. At that point, your benefits will permanently be reduced to about 75% of the amount that would have been available at full retirement age. For instance, if you were born from 1943 through 1954, full retirement age is 66. The age increases gradually for younger individuals. For those born in 1960 or after, full retirement age is age 67.

Q. How should you receive retirement plan payouts?
A. This will probably be one of your main sources of income in retirement. Therefore, you should not wait until the last minute to decide how the money will be paid out. In most cases, there are two basic choices:

1. You can elect to be paid in the form of an annuity (e.g., monthly payments for life). There are numerous variations. For example, a joint-and-survivor annuity allows your spouse to receive a portion of your benefit after you die, but it may reduce your own monthly payment. In contrast, a single-life annuity may provide a larger monthly payout, but no benefits for a surviving spouse.
2. You may take a lump-sum distribution of the full amount in your account. The primary advantage is that you can decide how your money is invested and you have complete access to the funds. However, you must pay a tax on the payout in the year of the distribution, unless you roll it over directly into an IRA (or other qualified plan).

Q. How should you invest your money?
A. For most individuals, the primary objective is to maintain a steady stream of income in retirement. As you near retirement, you should review your portfolio to see if it needs to be adjusted. Of course, diversification is generally recommended for investors.

1. Explain Your Objectives. Initially, employees may be hesitant to change the way they do things, particularly if they have been on the job for a long time. Begin by laying out all the ground rules. This would include which employees will do which jobs, what their goals will be, when assignments are due, how the work will be evaluated, etc. If everyone starts on the same page, the process should go much smoother.



2. Match The Jobs To People. Not all employees thrive under a delegation system. The best approach is to begin with employees who have demonstrated the ability to think on their feet. Otherwise, you might end up with an endless stream of people coming to you for help— a sure sign that the delegation process is not working out too well.



3. Give Employees Some “Room” To Work. In order for delegation to succeed, you must empower your employees to make their own decisions. Do not make “delegation” just another word for the same old way of doing things.



4. Ask For Commitment. In return for receiving greater authority, your employees have to understand that they will now be held more accountable for their decisions. To get this point across, spell out the rewards for those employees who succeed and the repercussions for those who fail.

5. Keep An Eye On Proceedings. Watch how well your staff is handling the delegation process. But this can be tricky. Reason: If you overdo it, you are back to doing things on your own; too little, and you can lose sight of what your personnel are doing. One idea is to use an assignment book or a computer ledger for tracking without being overbearing.



6. Provide Regular Evaluations. When a project is completed, set aside some time for analysis. Determine if your goals have been met. If not, explain where the person went wrong and what you expect the next time. Try to offer specific and constructive criticism so that the person can learn from the experience.



7. Know Your Own Limitations. For instance, you would not expect an attorney, accountant or business consultant to know everything there is about running your business, so why would you assume that you know theirs? Be careful where you concentrate your efforts. Do not hesitate to obtain professional advice when it is appropriate.

• No Tax Love Lost




• Political Aspirations

In a new case, a taxpayer received $160,000 from the owner of her company. She claimed that the payment was a gift reflecting the owner’s romantic interests. But gifts to employees are often scrutinized by the IRS to ensure that they are actually personal. To qualify as a gift, the payment must stem from generosity, affection, respect, admiration, charity, etc.

Result: The Tax Court determined that this “gift” was an enticement for the taxpayer to stay with the company. Therefore, it constituted taxable income.


The upcoming elections could provide an impetus for the types of services your business can provide. For instance, the needs of local or national campaign offices may run the gamut from printing and advertising to office furniture to courier services. If your firm is able to provide valuable services before November, it could lead to increased business opportunities in the future as well as government contracts.

Caveat: Budget-conscious campaigns may ask for donated services or reduction in your regular prices.