Savings for the Self-Employed

There are serious perks to having your own business. No boss, no corporate bureaucracy and no time-clock.

Of course, the flipside is that the pressure is on you to make the rent, you've probably used your life savings for the start-up costs and you could really use one of those juicy corporate expense accounts right about now.

Still, for most self-employed folks, yours truly included, the good outweighs the bad. But to keep your independence intact, you need to think about some year-end tax planning for your business.

The first step is to understand your company's financial situation, so get your books up to date. It'll be easier to make year-end decisions when you know your bottom line.

Then understand your accounting method. The cash method of accounting allows for deductions and income reported for the year they are paid or received. The accrual accounting method applies income and deductions in the year incurred. The tax tips will differ with each method.

For now, we'll assume you use a cash method of accounting. But in either case, be sure to meet with your tax adviser before the end of the year.

Black is Back!

If you made money in 2006, congratulations! But you'll probably want to beef up your 2006 expenses to offset the tax bill on that income.

Consider deferring any payments you're scheduled to receive to the first week of January. It'll just be less taxable income for you to worry about.

And then go shopping! For your business, that is, not your fabulous shoe collection. Try to increase your expenses as much as you can to offset the income you made.