Not long after the ball drops on New Year’s Eve, you need to start putting together information to prepare your tax return. Don’t wait until then to start thinking about 2017 tax breaks.
Was your income higher this year, making you nervous about how large your tax bill will be? Maybe you are remembering last year’s tax bill, and hoping to reduce what you owe this year. It can be done.
2017 tax breaks: 7 ways to lower your tax bill
Here are seven ways you can reduce the amount you owe — or increase your refund — in the time remaining this year to reduce your tax bill.
Contribute more in quarterly estimated taxes.
Use bad debts.
Contribute to a charity.
Make repairs to your office.
Go on a spending spree.
Set up a retirement account.
Let’s look at each strategy in more detail.
1. Contribute more in quarterly estimated taxes
If you think you will owe a larger amount this year, the easiest thing to do is pay as you go. The IRS’s “safe harbor rule” allows that small business owners only have to pay in the same amount as they paid in taxes the previous year to meet their quarterly estimated tax obligations.
However, if you had a great year you probably want to step up your quarterly payments. This prevents you from having to make a big balloon payment on April 15! In addition, by making sure your estimated taxes are close to what you will actually pay, you can avoid an underpayment penalty on the amount you owe.
2. Use bad debts
Have you been trying to get a customer to pay an invoice all year, but can’t seem to get them to fork over what they owe? It might be time to cut your losses and use those non-payments as 2017 tax breaks for the amount they owe. However, you will have to show that you took reasonable steps to try to collect the debt, such as by furnishing copies of the emails or letters you sent them.
3. Defer income until the following year
Maybe it’s the memory of roasted turkey and dressing that makes me say crazy things, but refrain from billing and collecting money from clients. While this might seem counter to the work you have done to increase your income, it really isn’t.
Unless you have told the IRS you are on the accrual basis, tax returns are done on the cash basis. It means taxes are levied on the amounts that you actually collected by December 31. Therefore, if you had done some work for the client, but collect the money after January 1, you won’t be taxed on it until after the calendar turns.
4. Contribute to a charity
The holidays are a time when people are contributing more to charity, and you might want to consider giving to a local nonprofit to earn a few 2017 tax breaks. However, make sure they are accredited as a nonprofit before writing a check. You can verify their credential by giving the organization a call and seeing if they have received nonprofit status from the IRS. In addition, be sure to catalog everything you donated, and get receipts with the names and addresses of the organizations to where you made donations.
5. Make repairs to your office
Have you been holding off on making repairs to your office? Before the end of the year might be a great time to get this done, as you can use the cost of those repairs for 2017 tax breaks.
6. Go on a spending spree
No, I have not had too many eggnogs. Go out and spend some money! However, we’re not talking about a trip to the high-end department store to stock up on clothes. We are talking about stuff you use in your business.
Do you have some office equipment on its last legs, or were you thinking of upgrading something in the coming year?
Consider buying it this year so you can take the deduction in this current year. (You know there are going to be some year-end sales.) In addition, now might be a good time to stock up on office supplies. You will be able to deduct what you spent on them this year as well.
7. Set up a retirement account
Face it: you won’t be able to work forever. At some point you are going to want to retire. As you are self-employed, you have a few options for retirement plans, such as SEP or SIMPLE plans. You can set up and contribute to these plans before year-end, which can also lower your taxable income and taxes due for the year — one of the most forward-looking ways to get 2017 tax breaks.
There are a number of things you can do to for 2017 tax breaks before the year ends. Check with your accountant about the options in this article if you have any questions.
The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.