It’s December – Do you know what your taxes are?

It's December, yet there is still time for indies to take a few steps that will make tax-filing season less distressing.

Which steps to take and the order they are taken depend on where you are and where you’re headed. So before you can better your tax situation, you need perspective on your current tax outlook. The way to get this perspective is to compare your expectations or planning for the year to what has actually happened.

If you've made more money than you’d expected or planned for, you may want to reduce your income with more business deductions or pension contributions.

On the other hand, if your income is lower than projected, maybe you can bring in income earlier than you expected or defer some deductions until next year when you’re determined to make more money.

The very first step: Start now! Get your tax papers together. More time means more complete records, fewer missed deductions, and the opportunity to discuss tax strategy with your tax pro. In stead of waiting until the hour has struck, ask her for a review now and get a projected tax total. If you hesitate because of the cost of the consultation, think about this: the more you get done now the less you and she will have to do later. Overall cost may be the same, or even less! And if it does cost you a little more it’s worth it if it helps to improve your total tax picture – and accounting fees are a deductible business expense.

Once you have an idea of your tax position, you can take steps to change it.

Too High Income
If your income is higher than expected or your deductions are skimpier than you’d like, here are some tips.

Look for more business deductions. Are there expenses or purchases planned for the future that you can make now? What about the scanner or desk you really need? The computer that you intended to buy next year?

Fine, you say, but I don’t have the cash for a major purchase. Well, there’s a way around that. Charge your purchase to a bank credit card. For instance, a $2,000 piece of equipment purchased with a bank credit card before the end of the year gets you a $2,000 deduction for this year even if you make no payment on it until next year. Keep in mind, however, that it has to be a bank credit card like MasterCard or Visa -- not a store credit card.

If you’re a cash basis taxpayer, which most of you are, a check written on or before December 31st for a legitimate business expense is a deduction for this year.

Of course, never spend just for the tax break You won’t get a dollar for dollar tax savings. Here’s a general rule: Unless you are in a very high tax bracket, a $1,000 business deduction will save you about $300 to $400 in federal income and self-employment taxes and state tax.

I use the term pension plan and retirement account interchangeably. For an artist or writer with no plan of ever retiring I call it a freedom account because it allows the freedom to change ideas and plans in the future.

So it’s time to re-evaluate your pension plan. The pension laws and regulations have had a complete makeover. You may be able to decrease your tax significantly by starting a pension or changing the kind you have. Be sure to investigate a relatively new pension plan that goes by several names -- the UNI-K, the Solo-K, the one-person-K. It’s easy to set up, flexible and, if established with the right brokerage house, inexpensive . Careful though: some brokers and investment people who don’t usually work with self-employeds may not be familiar with the UNI-K. They will try to steer you to the corporate world 401-K, which is the wrong plan for indies. Make sure that your tax or financial professional has a grasp of pensions that work well for indies.


Not Enough Income
On the flip side, what if you had a bad year and made less money than expected? One of the nasty side effects of a bad-income year is that you may be entitled to deductions that get you no tax breaks. Those deductions would come in handy next year when your IT business takes of or you've finally been accepted to the regional juried show, and your income increases.

Here are some possible moves to make in the face of a downer income year.

Delay purchases if you can. This is one of the advantages of understanding your tax situation before filing deadline – not that tax matters should determine all your decisions, but that taxes should be factored into them. If you can wait until next year when there’s a promise of more income, wait.

If you have to purchase a piece of equipment now because the sale ends on December 25, buy it now. According to IRS rules you don’t have to take the deduction in the current year if the equipment was not available for use, So if the set up of the scanner or computer must wait until the holidays are over and the guests leave then it is not available for use and so it is not a deduction until next year.

Do everything you can to get your income up. Offer discounts, have a sale, make an extra effort to get the money owed you, pester the gallery owners or consignment shops or laid-back-clients that have been slow in paying or who normally pay after the first of the year.

I said earlier to take a look at your pension if you’re having a good year. And if you’re having the opposite kind of year, look just as hard. Several pension plans require a contribution. You may not need to make a contribution in the current year because you don’t need to reduce your income. And in a low-income year you may not have the funds to make a pension contribution. The solution may be to change to a different type of pension plan. And now, before the year is out, is the time to discuss that with your tax pro.

This month you will see a lot of last minute tax tips posts and columns. Most of them will tell you the same old stuff: Clean out your closet and give the clothing to charity for a big write-off. It is a good idea to free up some closet space and do a good thing with your discards. But that is not going to have a big impact – if any – on your tax situation. picture. So, start now to develop your 2007 tax picture and you'll have a better perspective into 2008.

In future posts I’ll mention tax tips from other folks that are worthwhile. Keep an eye out for them.

June Walker