Now is the time to crunch the numbers or run a report to have an idea of what your taxable income will be for 2007. If you think that you will have to pay a lot in taxes, then start now to reduce your taxable income.
- Review charges on debit cards, credit cards and see if they are deductible business expenses
- Look at last year’s tax form and compare to this year’s expenses.
- Make charitable donations.
If self-employed, make contributions to a SEP IRA, but if you work for a company than has a 401K, then follow below.
To reduce your taxable income this year, consider maximizing your contributions to an employer-sponsored retirement plan such as a 401(k). You won’t be taxed on the contributions you make now, and you may be in a lower tax bracket when you do eventually withdraw the funds and report the income.
If you qualify, you might also consider making either a tax-deductible contribution to a traditional IRA or an after-tax contribution to a Roth IRA. In the first instance, a current income tax deduction effectively defers income–and its taxation–to future years; in the second, while there’s no current tax deduction allowed, qualifying distributions you take later will be tax free. You’ll generally have until the due date of your federal income tax return to make these contributions.