With all there is to do between now and the end of the year, how could I even bring up taxes? But your rational side is telling you that there may be business issues that you put off now that you will regret in the new year - and that rational side is right. To save you some time and let you sleep a little better, I have put together a checklist to help you look at your business to see whether there are any last minute tweaks you want to put in place.
Here are some tips to help you reduce your taxes:
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Take a quick estimate of your income and tax bracket you expect to be in this year and next. If you expect to be in the same bracket both years or if you will be in a higher bracket this year than you expect to be in the following, defer income until next year and shift expenses to this year to reduce the taxes you pay this year. If the opposite is true, you expect your tax bracket to be higher next year, try to accelerate your income into this year and defer paying your expenses to next year. Remember to take into consideration the side effects of either deferring or accelerating income. These changes can trigger changes in Social Security benefits, IRA contributions, personal exemptions, and write-offs for medical expenses, casualty losses, and charitable gifts.
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Bunch paying expenses such as medical, investment, tax preparation and other miscellaneous other expenses into one year so that the amount paid in a tax year is above the limit for deducting those expenses. If a payment is made by check, it must be dated and mailed in the year you wish to claim it. It is not important when it clears the bank. Payments made by credit card are considered made when the obligation is assumed, not when the credit card bill is paid.
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Run a quick recalculation of your projected taxes for the year. Revise your fourth quarter estimated tax payment to adhere as closely as possible to the rules for estimated tax payments. To avoid an underpayment penalty, your estimated payments for 1999 must equal 105 percent of last year's tax liability or 90 percent of your actual 1999 tax liability, whichever is less. Likewise, don't pay the IRS more than you need to. Reduce your last payment if it overpays these limits. Otherwise, you are giving the IRS an interest free loan.
