Conventional wisdom suggests that consultants, freelancers, and other businesses reporting income and expenses on a cash basis should strive to defer income and accelerate deductions in order to minimize income taxes for 2008. However, with businesses in a loss position for this year, this tax strategy should probably be reversed:
- Bill as soon as possible for any work completed so you’ll receive payment this year. The income will not be taxed if offset by losses and expenses. Also, billing promptly will help to ensure that your payment isn’t delayed or prevented by the payor’s financial position.
- Delay purchasing supplies, renewing subscriptions and memberships, and making other discretionary purchases until next year. Don’t jump the gun by charging items this year to a major credit card since the expenses are treated as made this year even though the bill is paid next year.
Using this reverse tax planning, deductions will be worth more to you when (hopefully) business picks up next year.