Year End Tax Planning for the Self Employed

Ways to minimize tax deductions:

1. Send december invoice to your client on Jan 01.
2. Pay your accounts payable in advance (even those that are due in jan). Could be your accommodation for the month of Jan.
3. Buy equipment for your business and take a deduction for upto $17,000. Of course this must be required by the business so that it gives you an competitive edge in the market and generates cash flow in the future.
4. Spend money to accelerate your corporate growth. I love this one. I might buy a high-end laptop and Webtrend pro by the end of this year.

These ideas are good if you have a good cash flow. You either postpone your income or prepone your expenses to minimize taxes. This is helpful because, it helps you during the transition to a new contract when you have to wait for 45 days or more for the first payment. So tax planning helps to get through the bumps ahead in the first quarter of next year. Don't over do or abuse it. It is reasonable to do it for the right reasons.

Consult a CPA and get advice for your scenario. I called a CPA and the fees are too much for me. He quoted $1600 for his services.

You could also apply for a solo 401k before the end of the year. But you don't have to fund your account by the end of the year. Because only after the end of the year you will be able to compute the amount of money you can contribute to this account. It is computed only for the amount you earned on 1099. You have to exclude any w2 income. Solo 401k allows you to get loan against your account for upto 50% of your account (maximum is $50,000). This way you can have your cake and eat it too. You get the tax benefit, the remaining money in your account act as an emergency fund and you are able to access half of the account and use it for your business or personsal expenses.