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Decrease your Tax Burden – Quick!

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Hey guys!

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:

Defer 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.

Accelerate expenses:

– 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)…

LEARNING OPPORTUNITIES

BUSINESS TOOLS

HIRE HELP

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…

http://internetbiztaxtips.com/2008/11/year-end-tax-tips/

Keep more of your money instead of handing it to Uncle Sam. 🙂

Best of luck.
Nicole

I adore comments! Please share your thoughts.

  • Nicole Dean
    Reply

    Oh, I forgot to mention — if anyone wants to plan a cruise in the next 36 hours that I can deduct on my business expenses — I’m in.

    My Travel Agent is Tracy Roberts. You can find her here:
    http://getawayvirtualservices.com

    Anyone? Anyone? 🙂

  • Crystal
    Reply

    Lol a cruise eh? Sweetness!!

    Actually, this is a great post! I’m in Canada, and these strategies would work here as well for this year’s taxes. If you have the money to spend, end of the year charitable giving is another way to lessen your tax burden a little, and you can use it as a promotional tool as well by sending out press releases about your charitable gift, blogging about it, and including it on your Press page. It’s bragging yes, but it also helps encourage other businesses to give AND gives you a tax break!

    Crystal’s last blog post..New Year’s Resolution – Family Time

  • Jennifer Knox
    Reply

    These are great tips! Thanks!

    I had planned to launch a new site at the end of November/beginning of December and put it off until 2009 for this very reason. But I think I’ll also make a few purchases today as well to help it along even more. 🙂

    Jennifer Knox’s last blog post..A New Year’s Resolution to Start Today

  • Lexi
    Reply

    Great tips! I’m in Canada as well, but I’m sure the same tips will apply. Thank you for the helpful post, as usual.

    Lexi’s last blog post..Do You Need to Break Through?

  • James touso
    Reply

    You have done a great job. But i think it’s not applicable for the people pf all countries.I am in UK now. sO it not beneficial for me.Still a great post.

  • Krankenversicherung
    Reply

    I like the way you sum-up things to explain. It’s self-explanatory and cute. Another additional “wealth-knowledge”. Looking forward to more of this type of “positive-outlook” writings.

  • Mike
    Reply

    Could you just spend more on advertising to balance the increase or are we talking loads to spend here.

  • Administrator
    Reply

    Hey Mike,

    I purchase a few thousand dollars in advertising at the end of each year.

    Basically, it comes down to how much money you made – which is the overall amount minus expenses. That’s what we’re taxed on.

    So, since advertising is an expense, I choose to spend money on it, knowing that it’ll pay me back the following year.

    As to how much to spend… you’d have to run those numbers with your CPA/Accountant. Normally I spend a bunch in December then we run the numbers in January to see how much I should put into my SEP to give me the best tax breaks in April.

    Does that make more sense?
    Nicole

  • Sandy
    Reply

    Thanks Nicole,

    This is great advice that I really didn’t give much thought too. I will certainly be prepared now for the new year.

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