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Ways Through the Maze: A Tax Guide for Indies

#6: Tax Tactics for a Low Income Year
December 2008
I know. With Christmas shopping or plans for the New Year party in store, who wants to think about taxes? But if you've had a low-income year there are some suggestions below that might help.  
 
June Walker
Consultant to Indies
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Ways Through the Maze

Will bring you clear and simple solutions to complicated situations about
  • income
  • expenses
  • taxes
  • recordkeeping
  • indie pensions
  • being self-employed

The Why of

Ways Through the Maze

To guide indies to a more simple and secure tax life. 

To promote indie-business self-confidence. 
 
To humanize tax issues with glimpses into the lives and concerns of self-employed people. 

Each issue will include one or more Q&As that come out of real-life situations of indies who have visited my blog or my website.  
 
From time to time I'll also announce indie happenings of interest to you.

Look below for this month's

 Slice of Indie Life 
 
Income lower than expected? Here's some help. 
It's December, yet there is still time for indies to take steps that will make tax-filing season less distressing.
 
Did you have a bad year and make less money than expected? One of the nasty side effects of a bad-income year is that you may be entitled to expense deductions that get you no tax breaks. Those deductions would come in handy next year when your indie IT business takes off 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 the end of the year -- 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. But keep in mind that in the current economic situation the January sale might be even bigger. 
 
Know that if you charge a purchase to a bank credit card before the end of the year it is a deduction for this year even if you make no payment on it until next year. Keep in mind, however, that this applies to only bank credit card like MasterCard or Visa -- not to a store credit card.

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. Remind them that they'll get a tax deduction if your fee is a business expense for them. 

Look at your pension. Several pension plans require that you make a contribution. But that required contribution may not be a tax advantage in a low income year. Or you may not have the funds to make a pension contribution. The solution may be to change to a different type of pension plan. Hurry up, before the year is out. Take with your tax pro, now. 

Wishing you a joyous holiday season.
June Walker