By Mary Hubbell
Many small businesses and self-employed business owners make the
mistake of not thinking about taxes until it’s too late.
Many small businesses and self-employed business owners make the mistake of not thinking about taxes until it’s too late. Most tax moves must be made before year-end. Here are a few tax-cutting ideas that will help reduce your 2006 business taxes.
n Purchase business assets. If your business will soon require additional computers, furnishings, or even transportation equipment, make those purchases before the end of the year and take maximum advantage of the Section 179 expensing election.
n Plan for retirement. If you don’t have a retirement plan, consider setting one up before the end of the year, even if you don’t have to actually fund the plan until 2007. In fact, there are federal tax credits for some of the costs of setting up a new retirement plan. And don’t overlook a Simplified Employee Pension (SEP) plan, which does not have to be either established or funded until 2007.
n Use your credit card. Even a cash-basis business can deduct expenses purchased with a credit card on the date of the charge, not necessarily when the credit card payment is made. So if you find that you need business supplies or equipment before the end of the year and you’re short of cash, consider using your credit card and deduct the expense this year.
n Defer income and accelerate deductions. For cash-basis taxpayers, consider sending out your invoices late in December so the payment isn’t received until the following year, thereby deferring current taxes. Also, stock up and pay for office supplies and other needed office items before year-end, including paying any outstanding bills or prepaying certain business expenses.
The very best way to maximize your business deductions is to meet with your tax professional while there is still time to take action.