At this time of year, a lot of my conversations revolve around tax saving strategies. I’ve spoken with several CPAs recently and the advice for cash basis tax payers is consistent. If you are showing a net profit for the year, here are the top 3 strategies for reducing your 2010 tax bill:
- Defer income – If you can, push income into 2011. Delay the invoicing, ask your clients to hold payment until January, and/or be less aggressive with your collection efforts.
- Accelerate Expenses – Buy needed items before the end of the year and pay down your accounts payable. Cash basis tax payers don’t get deductions until the money is spent, so pay as many of your outstanding bills as possible. Some accountants caution that prepaid expenses (like rent) are not deductible until the period they are used. Check with your tax accountant before pre-paying regular bills.
- Buy Needed Equipment – If you are going to need equipment next year, buy it before year end to take advantage of the Section 179 deduction.
Of course, talking with your tax accountant and reviewing your specific tax situation is advised.
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