Savings for the Self-Employed

Purchase items your business will need in the immediate future to maximize your deductions for this year. So if you have the cash, stock up on office supplies, like fax paper, printer cartridges, stationary, and other office items. Prepay any subscriptions and 2007 travel plans. And then pay some January bills, like your cell phone, rent, insurance and utilities in December.

Same goes for charitable donations. Get them in by year-end and make sure you get a receipt for the tax deduction.

And then take advantage of the IRS' Section 179 deduction. It basically allows small businesses to deduct the cost of equipment, machinery, furniture, software and other assets placed into service in the tax year those were bought. Otherwise, the tax rules say your business would have to depreciate the asset -- that basically means you would deduct a piece of the cost of the asset's years in service.

As a simple example, let's say you bought a piece of equipment for $2,000 in 2006 and depreciated it over five years. You would get a deduction for $400 a year for the next five years. But Section 179 says a small business can opt to take a deduction for the whole amount, the $2,000, in 2006.

For 2006, the maximum amount you can deduct under Section 179 is $108,000.

You can decide whether it's best for you to deduct the whole cost this year or depreciate it over a few years. Talk to your accountant.

And finally, if you have inventory or goods that have been damaged or have become obsolete, consider writing them off this year to offset all that money you made!