If you made significantly more money with your online business this year than you did last, you'll really want to read this.
Now, I'm not a tax adviser, but I do know one who gave me some tips that I'll share below. 🙂
Here's the scoop. If you made more money this year than last year, your quarterly taxes obviously won't be enough to cover what you owe, assuming everything else in your life remains the same. (Unless you added a deduction like a baby to your family or something…)
So, you'll owe money in April.
Last year, I purchased approximately $2000 in advertising and paid my affiliates early and prepaid some subscriptions right before January 1st in order to lessen my income. (The expenses get subtracted from my income so my overall income would be less — therefore less taxable income.)
Now, don't go spending money you don't have on things that you don't NEED. You're still spending money.
However, if you plan to buy things anyway.. or have a birthday coming in February like I do and want to treat yourself to some business items, then buying early can be a smart move.
Here's my interview with Kristine McKinley:
You definitely have the right idea. If your business income is up this year, then you want to do some year-end tax planning to try to reduce your taxable income for the year.
You basically have two options: you can defer income into the next year, or accelerate expenses into this year.
If you're not sure how to do that, here are some tips to reduce your 2008 taxable income:
if you are self employed, one way to reduce your taxable income is to defer income. You can do this by holding off on billing clients until after 12/31. Or if you were planning a teleclass or a big product or service launch at the end of the year, you could hold off until January.
– Software: I know I'll need tax software in the next month or so, so I can choose to purchase it in 2008 if I want to accelerate my expenses, or if I think my 2009 income will be higher, I can wait until Jan 1 to buy my software
– Supplies: same concept; any supplies I know I will need for tax season I'm going to buy now to reduce my 2008 income.
– Furniture and equipment: do you need a new computer, an external hard drive for backup purposes, a new chair for your desk?
– Web hosting or domain renewals: do you have any domains that will be expiring soon? Renew them now instead of waiting until they expire.
– Office supplies, shipping supplies, computer supplies: basically stock up on any supplies that you use on a regular basis in your business before the year is over
– Continuing education or classes to improve your business: if you are required to take continuing education, or if you just want to take some classes to help you improve your business, signup and pay for the class before the end of the year so you can deduct it on your 2008 taxes.
– Membership sites: if you've been sitting on the fence about joining any membership programs (Shelancers for example), signup before Jan 1 so you can deduct the fees on your current year tax return. Even better, if they offer a lifetime membership fee, choose that option to save money and to take an even larger deduction on your tax return.
– Do you need any work done by web designers, VAs, or other independent contractors? Consider prepaying them for work that you expect them to do in the next 30-60 days. Don't forget to send them a 1099 if you pay them $600 or more during the year.
– Affiliates: do you usually pay your affiliates on the 5th of the month? Consider sending them their December commissions on 12/31 instead of waiting until Jan 5th.
– Donate to charity: while donations to charity won't reduce your business income, they will reduce your total income, so consider donating cash, services or goods to your favorite charity before the end of the year
Basically, any expenses that you expect to incur in the next few months that can be accelerated into 2008 will help reduce your taxes for 2008.
One other strategy that every self employed person should consider is funding your retirement account. However, you have a little more time for this strategy as the deadline for most retirement contributions (to IRAs, Roth IRAs, Simple IRAs, etc.) is April 15.
So, here are my recommendations for some items you might purchase (based upon my favorite things)…
- Small Reports Fortune – If you've ever considered writing an ebook to sell… this course is worth it.
- Sales Army Secrets – THE course for getting your affiliate program making sales.
- MomMasterminds Annual Membership. This is a great program for Moms and I recommend it for anyone looking for assistance in their online business.
- Autoresponder – if you've been putting off this purchase, now's the time.
- Shopping Cart – pay for a year in advance.
- Get Organized with your Outsourcing – pay for a year in advance and organize all of your helpers.
- Load up on some PLR at EasyPLR.com
- Hire a Shelancer to write press releases, articles, sales pages, or design graphics for you.
- Hook up with an Article Writing & Distribution service.
- Also, you can go to the Warrior Forum and check out their Special Offers section to find great deals on advertising and copywriting.
And, of course, you can hire Kristine to help you with your financial planning. She said:
Hope this helps! If you need more ideas I've got several posts on my blog about year end tax planning. Here's a link to one…
Keep more of your money instead of handing it to Uncle Sam. 🙂
Best of luck.