If you go shopping, you will see Christmas decorations in all the stores. Not only is it a reminder to do your holiday shopping, but it also reminds you the year is almost over. And not long after the ball drops on New Year’s Eve, you will need to start getting your information together for your tax return.
Did you have a good year income wise, and are nervous about what your tax bill is going to look like? Or did you owe a large amount last year and want to reduce what you owe this year? There are a few things you can do to reduce the amount you owe, or to increase your refund, in the time remaining in the year to reduce your tax bill.
Contribute More in Quarterly Estimated Taxes
If you think you will owe a larger amount this year, the easiest thing to do is pay as you go. While the IRS’s “Safe Harbor Rule” allows that small business owners only have to pay in the same amount as they paid in taxes the previous year to meet their quarterly estimated tax obligations, if you had a great year, you probably want to step up your quarterly payments. This prevents you from having to pay a big balloon payment on April 15th!
Defer Income until the Following YearThis may sound a little crazy, but hold off on billing and collecting money from clients. While this may seem counterintuitive, it actually makes sense when you think about how the IRS taxes you. Tax returns are done on the cash basis, which means that the taxes are levied on the amounts that you actually collected by December 31st. If you had done some work for the client, but collect the money after the New Year, you won’t be taxed on it until the following year.
Contribute to a Charity
Consider contributing it to a local charity. Make sure they are a non-profit before writing a check. If you donate some used office equipment to them, be sure to catalog everything you donated, and get a receipt with the name and address of the organization to whom you made the donation.
Go on a Spending Spree
Yes, you read that right. But we’re not talking about a trip to the high end department store to stock up on clothes. Do you have some office equipment on its last legs, or that you were thinking of upgrading in the coming year? Consider buying it this year so you can take the deduction in this current year.
In addition, now might be a good time to stock up on office supplies. You will be able to deduct what you spent on them this year as well. There are a number of things you can do to lower your tax bill before the year ends. Check with your accountant about the options in this article if you have any questions.