The end of the calendar year is fast approaching, and for independent web workers (as for anyone else who’s self-employed in the USA) that means more than just chestnuts roasting and swapping holiday cards. Its also means that you should spare a few minutes to consider your tax situation and what you can do to possibly make it better. While we’re in favor of staying legal and paying our fair share, we’re certainly also in favor of saving money when you can legally do so.
The usual caveat applies: I am not a tax professional, just someone who’s been self-employed for far too many years and who has spent the end of the year badgering many actual tax professionals. Talk to your own accountant for the final call on what’s right for your own situation.
1. Update your books and talk to your accountant. In fact, that’s so important that it should be the first thing on your list. If you’ve fallen behind on your bookkeeping, catch up now, and then get the files over to your accountant for a year-end review. Your accountant may have a variety of strategies, from taking extra salary to a loan between yourself and your company, to suggest – based on precisely how your self-employment has performed over the course of the year.
2. Accelerate expenses, hold off on income. Depending on the size of your bank account, December is a good time to be spending money, and not such a good time to be making it. Been holding off on buying a software application? Now’s the time to spend the money. Office supplies you go through on a regular basis? Doesn’t hurt to stock up. Finishing up a major chunk of work? Bill it in January instead of now. Remember, whether you’re on cash or accrual basis accounting affects how much you can shift stuff around, so talk to your tax pro to get the details.
3. Review those tax-deferred accounts. IRAs, Keoghs, HSAs…there are various ways to shelter income from taxes. Though you can contribute right up until tax time, in some cases you need to have the plan set up by December 31 to have it qualify for this year’s tax deduction. So now’s the time to be thinking about where you’re going to park any retirement funds and how your cash flow is going to support it.
Finally, you might also want to go back and review our previous coverage of self-employment taxes and home office deductions, to see whether you’re missing any other way to hang on to more of your own money for the year.