It’s hard to think about taxes when the holidays are near. But now is a great time to make some final moves to cut your 2006 tax bill. To save the most money, look at how your business fared this year and then estimate revenue for next year, advises Joe Kristan, tax technical director at accounting firm Roth & Company PC in Des Moines, Iowa. Your best year-end tax maneuvers will be different if this year was an unusually good one, or if you’re expecting sales to jump next year.
If revenue will rise next year, postpone paying expenses until January--you’ll need the write-offs more next year. Pull in any revenue you can collect this year.
If you envision a slump next year, now’s the time to defer income into 2007 and prepay as many expenses as you can. Make equipment purchases, or prepay fees now. Revalue, sell off or donate obsolete merchandise for an inventory write-off.
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A final tip: If you are close to a tax bracket’s income limit, redouble efforts to reduce gross income. Donate to charity or contribute to a retirement plan, for instance. Cutting a few thousand dollars of taxable income can bring substantial relief. For example, if you’re married and have taxable income of $193,000, the first $188,450 will be taxed at 28 percent. But that last $4,550 is taxed at 33 percent--that alone is a $1,500 tax bill.
Seattle writer Carol Tice reports on business and finance for The Seattle Times, Seattle Magazine and other leading publications.
Originally published in the December 2006 issue of Entrepreneur Magazine