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You may be able to give yourself a present in the upcoming tax-filing season by looking at these tax-saving strategies before the end of the year. Investment Gains and Losses Review the investments you hold in taxable accounts and your year-to-date transactions. You can use capital losses to offset capital gains and up to $3,000 of ordinary income on your 2005 tax return. So selling investments that have lost value can be a tax saver in the right situation. Just do not let taxes drive your investment decisions. A Tale of Two Taxes If you itemize deductions, the state and local income taxes you pay are deductible. Again this year, you can choose to deduct state and local general sales and use taxes instead. You can deduct either the actual amount you paid (and have receipts for) or use the IRS tables and add any sales tax you paid on certain big-ticket items. This option is scheduled to expire after 2005, so if you’ve been looking at cabin cruisers, you could get a boost if you buy before December 31, 2005. You can also increase your itemized deduction for state income taxes by having more tax withheld from your pay or making any estimated tax payments due in January 2006 before the end of 2005. Just beware: These strategies could trigger (or cause you to pay more) alternative minimum tax (AMT). Business Tax Tips If you are a business owner, deferring income until the new year is a popular tax-saving strategy. Cash method businesses can “push” receipts into the following year by postponing December’s billing cycle. Accrual method taxpayers can defer income by delaying the delivery of services or products until 2006. Another strategy is to accelerate deductible business expenses. Purchasing necessary supplies or scheduling pending equipment repairs before the end of the year are two possibilities. However, if you expect business income — and your tax rate — to increase substantially next year, it may be better to postpone these deductible expenses until the 2006 tax year. If you are serious about giving yourself the gift of tax savings, we’re here to help. back to top

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The time for taking steps that could lower your 2005 income taxes is growing shorter with each passing day, so you will want to review your situation soon. To save time, use the checklist of planning points that follows. Defer Income For employees: Ask your employer to delay payment of a year-end bonus until January. Increase your 401(k) plan salary deferral amount. For self-employed and other business taxpayers: Time late 2005 customer billings so that payments won’t be received until 2006 (only for those using the cash method of accounting for tax purposes). Caution: If your 2006 tax rate will be higher than 2005’s, income deferral may not be beneficial. Increase Deductions For individuals who itemize their deductions: Make your January 2006 mortgage payment (which includes December’s interest) before the end of the year. Contribute to charity before year-end, using a credit card if you wish. Pay your final 2005 state income tax estimate by December 31 or increase the amount of state income tax being withheld from your pay. These strategies may be especially worthwhile if a tax projection indicates that you are in an underpayment situation (see us). If you will be deducting state and local sales taxes instead of income taxes, making big-ticket purchases before the end of the year could increase your deduction. Caution: Some of these strategies could cause an alternative minimum tax (AMT) problem. For sole proprietors/businesses: Buy office supplies and renew subscriptions before the end of the year. Buy equipment and place it in service before the end of the year if doing so will generate a write-off under Section 179 of the tax code. (The maximum Section 179 deduction is $105,000 for 2005; other limits apply.) For S corporation shareholders: Make sure you will have enough “basis” to deduct your share of any loss that your corporation may pass through to you. To increase basis, you can loan the company money or make a capital contribution before year-end. Review Investments For all individual investors: Keep in mind that capital losses can be used to offset capital gains and up to $3,000 of ordinary income annually. Then, too, selling an investment showing a paper loss turns that loss into an actual loss. If your capital losses exceed your total capital gains plus $3,000, you might consider selling an appreciated investment before year-end if the excess loss would absorb the gain. You may carry forward any unused capital losses for deduction in future years, subject to limitations. Know What Has Changed 2005 is the first year the new domestic production activities deduction becomes available. If your business qualifies, be sure you’ve taken all possible steps to maximize the deduction. Remember that the energy tax incentives discussed in the "Save Energy, Save Taxes" section below don’t become available until next year. Talk with Us These general planning strategies may not be helpful in your particular tax situation. We’re here to answer your questions and help you analyze the steps you might take now to lower your taxes. back to top		Why not surprise your family with some different gifts this holiday season. Here are some suggestions: A gift of stock or mutual fund shares may or may not be financially generous in and of itself, but it may spur an interest in investing that could pay off financially for the rest of the recipient’s lifetime. A gift of education could also bring the recipient a lifetime of benefits. Consider setting up a tax-favored Coverdell Education Savings Account or Section 529 college savings account for your future scholar. A gift of a U.S. Series EE or Series I Savings Bond is convenient because these bonds can be purchased for as little as $50 ($25 if purchased online through the Treasury Department). back to top                         I’m a junior high English teacher. Every year, I spend many hours volunteering as a reading tutor for a local charitable organization. May I claim a tax deduction for the value of my services? Unfortunately, the tax law does not allow volunteers to deduct the value of their time as a charitable contribution, even if the charitable work they do is similar to what they do for a living. However, many of your out-of-pocket expenses (travel costs, etc.) may be deductible. We can help you determine which of your expenses qualify. back to top

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Given a choice between recognizing income now or in a later year, most people want to be paid now and be taxed in a later year.  As a practical matter, however, an employee cannot defer compensation after performing services and becoming entitled to payment.  Routine compensation earned over a prescribed pay period -- a week, two weeks, or a month, for example - usually is paid or made available in the same year it was earned. Recognition of the income cannot be put off to a later year.   If the employee earns compensation in one year but will not receive it until the following year, the amount is treated as deferred compensation (unless the employer has funded or secured its obligation to pay, or the 2 1/2 month rule, noted below, applies). If an amount is treated as deferred compensation, the employer cannot take a deduction until the year the employee includes the compensation in income. This rule applies even if the employer is on the accrual basis and all events have occurred that entitle the employee to a specific bonus amount. This "matching" principle is contained in Code Sec. 404(a)(5). (more) back to top		by Cathy Sullivan & Katie Wallen October 28, 2005, marked the 20th anniversary of Jay Hoover’s first day with BSH.   July 1992 Loyalty is a character trait faithfully portrayed by Jay Hoover.  He is proud to tell people that he only had three jobs, including a paper route as a child, before coming to BSH.  Once at BSH, he was here to stay.  Jay began his history with the firm in October, 1985, as a tax accountant.  Within two years he had obtained his CPA certification and was promoted to Senior Accountant.  On June 1, 1990, he was admitted as a managing member of the firm.  Cathy Sullivan fondly recalls his admission as partner,  “From the day he joined the firm, Jay’s focused energy, analytical skills and tax expertise made him invaluable to our practice. Jay was a natural addition to the partnership, and he continues to exemplify our dedication to our clients and associates.” Since 1999, Jay has served as Chief Manager of the firm, managing the downtown staff employees and a variety of clients in many industries. Jay has always been committed to excellence.  Not content with just the CPA certification, he spent four years studying to become a Certified Financial Planner and Personal Financial Specialist.  He has always desired to provide his clients with more than just an annual tax filing as required by the government.  Jay strives to provide value-added services to his clients by planning for the future.  November 2005 In addition to professional excellence, Jay is committed to civic activities.  He has been active in the Exchange Club of Nashville, Nashville Cursillo, Board of Trustees for Pope John Paul II High School, Men of Valor, and the Cystic Fibrosis Foundation.  With all of these organizations, Jay’s service extends beyond lending his name as a supporter.  He donates significant time and talents to each of these organizations, to the benefit of many. Most importantly, Jay is committed to his family.  Rarely does a meeting go by without the mentioning of his wife and daughters.  He is active in the education of his children and dedicated to their success at all levels.   Thank you Jay, for your 20 years of service to Baker Sullivan Hoover, and for the example you set for all of those around you. back to top

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Buying real estate and watching it appreciate is great — until it’s time to sell the property and pay taxes on your profit. Instead of selling, you might consider a property swap called a “like-kind exchange.” A like-kind exchange of business or investment property that meets tax law requirements allows you to defer your gain for tax purposes. How It Works Here is an example. Say you own land worth $800,000 that you bought for $300,000. You exchange the land for a building, also appraised at $800,000. Assuming the transaction satisfies the like-kind exchange rules, your $500,000 gain on the land ($800,000 value minus $300,000 cost basis) is tax deferred. What would happen if you immediately sold the building for $800,000? For tax purposes, the building has a cost basis of just $300,000, the same as the exchanged land’s cost basis. So you’d have to report a taxable gain of $500,000. Exchanging a Principal Residence If you have used a portion of your principal residence as a home office or converted your residence to a rental property, a like-kind exchange could save you taxes. Earlier this year, the IRS clarified that the exchange of a home can qualify for like-kind deferral and the home-sale exclusion — the tax law provision that allows principal residence gain of up to $250,000 ($500,000 on a joint return) to permanently escape taxation. The like-kind exchange can be a significant tax-saving opportunity. If you’d like to know more, we’d be happy to discuss it with you.   back to top		Individual and business taxpayers can look forward to some new energy-related tax breaks. The federal energy legislation that was enacted in August contains tax incentives designed to encourage the use of energy-efficient technologies. Many of the incentives become available in 2006. Here are some highlights. New Wheels Buy or lease a new “alternative motor vehicle” and you may be eligible for a tax credit. The vehicles described in the law include those powered by fuel cells, advance lean burn technology, and alternative fuels. Qualified hybrid vehicles are also eligible. The credit amount varies with the type of vehicle. Home Sweet Home A tax credit of up to $500 (overall lifetime cap) will be available in 2006 and 2007 for making certain energy-saving improvements to your principal residence. The credit is available for improvements to the “building envelope” (such as exterior windows, doors, insulation, and certain metal roofs) and for the installation of equipment that meets specified standards for energy efficiency (such as furnaces and water heaters). Limits apply. Install solar equipment in your principal residence or second home in 2006 or 2007 and you may qualify for another tax credit. For qualifying photovoltaic property, the credit is 30% of the cost, up to a $2,000 maximum annual credit. A similar credit is available for solar water heating equipment. The law also provides a 30% credit for installing a “fuel cell power plant” in a principal residence, up to a $500 maximum credit. For Home Builders Builders and manufacturers of energy-efficient homes also receive a tax break in the form of a tax credit of up to $2,000 or $1,000 per home (depending on the type of home and other factors). The credit is available for qualifying residential structures completed after August 8, 2005, and acquired in 2006 and 2007. . . . And for Commercial Building Owners Planning to upgrade a commercial building or to construct a new building? The new law provides a tax deduction for making your building more energy efficient. The “energy-efficient commercial building” (EECB) deduction is available for qualifying property placed in service during 2006 and 2007. The maximum deduction is equal to $1.80 per building square foot ($.60 per foot for certain separate building systems), less the total amount of EECB deductions previously allowed for the building. There is no overall per-building cap on the deduction. Other requirements apply. If you would like more information on how the new tax provisions might benefit you or your business, please talk with us. back to top