Strategies: Do this now to reduce your tax bill in April
Nine last-minute easy steps to take now to lower your taxes come Spring.
— -- This year, of all years, every dollar you save is important. That's particularly true when it comes to taxes. A few steps taken now — before the year ends — can save you money when tax time rolls around.
In this economic climate, some normal year-end tax planning rules are turned upside down. So it's particularly important to talk to your tax adviser to understand your individual situation.
So here are nine last-minute easy steps to take now to lower your taxes next April. Most of the following apply to those who run their businesses on a cash, rather than accrual, basis:
1. Size up your likely bottom line for 2008. Run a quick P&L — or profit and loss or income statement — to figure out whether you made a profit this year and how much of one.
2. Forecast (or more likely, guess) what your 2009 income is going to be. Take a look at your market, your industry, your own plans and get a general sense of whether 2009 is going to be a growth or down year for you.
3.Option A:If 2008 is profitable, especially if it's likely to be better than 2009, follow the basic law of year-end tax planning and "accelerate expenses and delay income."
If you've been fortunate enough to have a good (or decent) year in 2008, you want to follow the time-honored rule of end-of-year tax planning by increasing your deductions and lowering your taxable income — even if it means spending money before Dec. 31. Here's why: Taxes on money you earn on or before Dec. 31, 2008, are due by April 15, 2009. But if you can somehow arrange to have that money received Jan. 1 or later, you don't have to pay taxes on that income until 2010. Obviously, it's better to have that tax money in your pocket rather than Uncle Sam's. In essence, you delay taxes for an entire year on income you've put off receiving until January and get the benefit of deductions a whole year earlier for December expenses.
3.Option B:If 2008 was unprofitable, or it's been profitable but 2009 is going to be much better, then turn that basic rule of tax planning on its head and "accelerate income and delay expenses."
