Tuesday, September 18, 2007

Reduce 2007 Taxes: Accelerate Deductions or Delay Income

To reduce one's 2007 taxes, a good strategy may be to accelerate deductions or delay income. This can be an especially good strategy when one's expected income is significantly higher in the current year than in the upcoming year. Also, it's a great benefit when the actions result in a moving one to a lower tax bracket. Here are some ideas that one can use.

Accelerate Deductions
  1. Charitable donations. Donations to churches, universities or charities (e.g. Salvation Army or Goodwill) can easily be accelerated into the current tax year. In some cases, the organization can give one credit against a future pledge.

  2. Property taxes. In my county, one can choose to pay next year's property tax in the current tax year. When one does this, two times the property tax can be used for itemized deductions. However, if one has triggered the AMT tax, additional property tax deductions will reduce one's tax liability.

  3. Supplies. For the self-employed, one can purchase additional supplies or pay other legitimate expenses. Purchases should be done within reason. Three extra months of stationery supplies may be reasonable. 10 years of supplies would not.

Delay Income
  1. Retirement account. Contributing to a tax exempt retirement account is the easiest way for a wage earner or a self-employed person to defer income. If one is not already maxed out, increase 401K or deductible IRA contributions.

  2. Bonuses. While one cannot delay taking wage income, sometimes a bonus can be taken in the following tax year. Check with your employer.

  3. Billing. If one operates on a cash basis, one can sometimes delay billing to the following tax year for services provided this year. This makes sense to do if the following year is not expected to generate as much business as this year.

Since I have been employed by a company for all of my working career, I have only used #1 and #2 for accelerating deductions and #1 and #2 for delaying income. If I should create self-employment income in the future, I will consider using #3 for each approach.

For more on Ideas You Can Use , check back every Tuesday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

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