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Year-End Tax Strategies for Fun and Profit!

The Warm-up:

Year-end is a critical time for tax planning and budgeting, for both this year and the coming new year. If there are items you need for your office, it probably makes sense to purchase them before December 31st.  Talk with your tax professional now!

The Work-out:

The last dollars you make in November and December are taxed at the highest rate (your highest "marginal rate"), so for most independent professionals and small business owners, it makes sense to plan wisely. The words "spend it or lose it" take on real meaning this time of year.

The money you make at the end of the year could boost you into a higher tax bracket.  So, consult your tax advisor and review both your income and any normal business expenses that can be paid (and deducted from your income) before the end of the year.  For this exercise, your objective is to have the lowest possible taxable income.  The issues basically fall into two categories:  Delay income until next year, and accelerate expenses into this year.  If you can easily arrange your affairs to reduce or eliminate some taxes, why not do it?

First, a word of caution:  There is a huge and vital distinction between "evading" taxes which is illegal, immoral and a waste of time, and "avoiding" taxes, which makes absolute sense. 

For instance, it is illegal to "hide" income earned and received in December until the new year, but it is perfectly acceptable to shift income into next year.  An example of the WRONG way to do it was an individual I heard about who saved checks he received in December and deposited them after January 1st.  That is illegal.  Don’t do it!  But you can work with clients to postpone regular sessions until after the holidays.  I sometimes close my office and take 2-3 weeks of vacation over the holidays, then work extra hard (and earn additional income) in January.  Talk with your advisor about legally delaying income, and thus delaying paying taxes for an entire year!   It will save you money, and make your life simpler.

The second strategy is to be sure you purchase (and take delivery of) items that can be expensed this year before December 31st.  Items I encourage clients to look at are the furnishings and equipment in your office.  If they need to be replaced or up-graded, do it now.  You can deduct it from this year’s taxes, and it lets you start the year (and go through the winter) with nice new stuff!  Does your computer or software need to be upgraded?  Do it now!

Check your printing supplies and other consumables.   If you need more supplies, or if it’s time to improve that old business card or print a new brochure, do it now!

How about pre-paying next year's dues for professional organizations?  Do it now!  Subscriptions can also be renewed and be expensed this year, although I’m told you can only deduct one year in advance, so there’s little advantage to taking the discount for multi-year subscriptions.

Finally, two other items in this category are paying all state and local taxes by the end of the year.  If you will owe state or local income taxes for this year (normally due next April 15th), pay that tax by December 31st and it may become a deduction off this year’s federal tax liability!

A final caution:  Before making any moves regarding taxes or business expenses, talk to your professional tax advisors.  Based on conversations with my advisor, I believe the information in this article is correct, but even so, I'll have Rhonda review everything once again before filing my taxes.  You should do the same.  Taxes represent a huge expense.  Get smart professional advice.

The Rewards:

The obvious reward is saving money.  Your last-of-the-year income will either be re-invested back into your business, or Uncle Sam will take about 40-50% of it.  That means legitimate business expenses you incur between now and the end of the year are essentially half-price!  That new desk chair you’ve been wanting?  It’s 40-50% off!  That business development seminar?  It's almost half off right now!

There are two other rewards that are even more valuable than the dollars you will save:   (1) It means you start the year with a thorough review of your office practices and up-grade your office to the way you want it.  That has tremendous emotional impact on you and your clients.  (2) You start the year by consulting with your tax advisor, reviewing your business strategies, and making purchases according to a plan.  That creates wonderful momentum for the new year!  Happy New Year!

Phil, Mary, and the Staff at
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Copyright 2003 by Philip E. Humbert. All Rights Reserved. This article may be copied and used in your own newsletter or on your website as long as you include  the following information:  "Written by Dr. Philip E. Humbert, writer, speaker and success coach. Dr. Humbert has over 300 free articles, tools and resources for your success, including a great newsletter! It's all on his website at: "