Small Business Tax Advice

Lowering Small Business Taxes by Increasing Business Expenses

Increasing your expenses in December is one of the best ways to pay less in taxes. Here's how it's done.

One of the most popular ways to lower small business taxes is to prepay expenses for the following year.

If your rent is $3,000 per month, why not prepay your landlord for January through March of the following year?

If you've received any invoices from your vendors, why not pay them off?

Every dollar you spend defers the tax hit on a dollar of revenue.

Sure, if you prepay your rent this year, you'll be more profitable next year because you won't have as much rent to pay, and, as a result you may have higher taxes next year.

However, you're keeping the tax savings in the bank for a full year, earning a little interest on it perhaps, and the end of next year is a long way off.

The key is to focus on minimizing small business taxes this year and then do the same exercise again next year.

What else can you buy now to lower small business taxes? How about buying office equipment or office furniture?

Everything you buy now is a tax writeoff that lowers your tax bill.

Even if it's something that needs to be depreciated over time, you still gain some tax benefit from buying it in December.

It's a good idea to review all of your vendors, everyone you've cut a check to in the last year or so, and see if there are deductible expenses you can prepay.

Remember, even if the checks you write are not cashed or deposited until early next year, you can still take the writeoff for this year. Still, just to play it safe, it's a good idea to send big checks via registered or certified mail. If you do that, you've got proof that you mailed the check in time for the recipient to have cashed it this year.

Using credit cards to pay your bills is an even smarter move. By putting expenses on your business credit card, you can create 2007 tax writeoffs now but you won't have to pay your bills until 2008. How sweet is that!

Remember, it's a two way street. People may prepay you just as you are prepaying your vendors.

To be sure that you you negatively impact your bottom line, you may want to pay a little more than you think you have to pay in order to properly manager your taxes.

Of course, you don't want to prepay your taxes now in December if you think it's going to cause cash flow problems in January.

So now you know how to lower small business taxes by raising expenses. In a previous article, you learned how to lower small business taxes by lowering revenues.

As the next article in our series, we cover some Popular Year End Small Business Tax Moves to Save Money on Taxes.

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