There is a reason non-profits press hard for donations during the holiday season, and it is not just counting on your generosity. The end of the year is your last opportunity to plan for tax deductions and expenses for your next tax filing.
It is time to dig up those receipts and look at investment opportunities for your business. Any money that you spent on your business throughout the year should be clearly recorded and tracked for tax deductions. In most cases, every dollar you spend on your business offsets your income. You pay taxes on your profit, not your revenue, so expenses directly lower your tax liability.
If you are looking to buy anything new for your business, the end of the year is a great time. Not only are most products on sale, you can also write them off in your current year taxes. Printers, computers, computer accessories, and equipment used by your business are the most common capital investments for small businesses.
This post is not just for business owners. Anyone can save on their taxes by donating money or goods to charity. As long as you are itemizing your taxes, you can deduct the amount of any donation from your total income to lower your tax liability.
If you give money, make sure it is to a qualified 501(c)(3) non-profit and keep your receipt. If you give goods, make sure to give to a qualified non-profit and keep your estimated value receipt. Places like Goodwill and ARC thrift stores are great for donations.
Retirement Account Contribution
If you have a self-directed IRA or small business SEP account, any contributions you make are pre-tax. If you contribute, it will lower your overall tax liability. If you have enough in your savings, you could even direct your employer to put 100% of your final paychecks into a 401(k) (up to a certain annual contribution limit), which makes that income tax free.
If you own a business and do not have any employees, you can setup an SEP, or simplified employee pension. This works like a 401(k) for small business owners. All you need to do to open an SEP is to submit a form 5305-SEP at your bank. Make sure to discuss this with a tax professional before proceeding.
When I first wrote this post, I was still in the midst of graduate school. With three days left in the year, I made my way to the campus bookstore to buy my books early for the next term. Direct education expenses, such as books and tuition, can be deducted from your income for taxes.
If you are taking any classes, pay by the end of the year if you want it to count in the current tax year. I paid tuition on December 31st to ensure the tax treatment worked to my advantage.
How Do You Lower Your Taxes?
Do you make any steps to lower your taxes at the end of the year? Do you think it is silly and just wish everyone would pay their part? Please share your thoughts in the comments.
Originally posted December 29, 2008. Updated December 26, 2012. Image by Phil Taylor from PT Money / flickr.