Being self-employed, what sort of deductions can I take?
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.
If I have a large capital gain this year, what can I do?
If you have a large capital gain this year from an investment, it may be advisable to hold onto the investment until next year to put the gain into next year’s taxes. You may also want to sell off any investments that you have that are losing value at the moment to claim your losses.
What investments can I make to help defer taxes?
The interest gained from state and local bonds is usually exempt from federal income taxes. These investments generally pay back at a lower interest rate than commercial bonds of similar quality.
Since Treasury Bonds are similarly exempt from state and local income tax, they can be a particularly good investment for those who are in high tax brackets and live in high-income-tax states.
What retirement plans are available to aid in the deferral of taxes?
You have the ability to invest some of the money that you would have paid in taxes to add to your retirement fund. Many employers will offer the opportunity to defer a portion of your earnings and contribute them directly to your retirement account. Some of them may even match a portion of your savings. If this is the case, it is always advisable to save at least the amount that your employer will match. This will give you an automatic 100% gain on your money.
If you are self-employed, look into getting a Keogh, SIMPLE or a SEP IRA.
What other ways can I defer this year’s income?
If you own your business you may want to postpone sending certain invoices to ensure that you will receive payment in the following tax year. This can help greatly if some of this income would push you into a higher tax bracket. You may want to accelerate paying for expenses to cover your taxes in the current year.