End of the Year Tax Moves for Freelancers

Only a few days are left in 2008 and that means you only have a few days to reduce your tax liability. The more money you make, the more you’ll owe in taxes. If you want to lower your tax bill, here are a few things you can do in the remaining days of this year.

Delay invoices. There are two types of accounting methods for taxes: Cash and accrual. With the cash method, you count income and expenses when you receive and pay them. With accrual, you count income when it’s invoices and expenses when they’re incurred. No matter which method you use, saving your final invoices until January 1 will reduce your income.

Pay January’s health insurance premium. Self-employed individuals can deduct 100% of the health insurance premiums paid. This is a top-of-the-line deduction you can make whether you itemize your taxes or not.

Prepay next year’s web hosting. Business expenses are also tax deductible and reduce your taxable income. If you host websites as part of your freelance writing business, hosting charges can be deducted. Your accounting method (cash vs. accrual) does count here. Paying your web hosting works best when you use the cash method.

Make an extra house payment. Mortgage interest paid is tax-deductible, so sending in a payment before the end of the year gets you closer to home ownership and decreases what you owe the IRS.

Give a donation. If you itemize your deductions, you can deduct any donations you give to charity. Work done for charities counts too. You need a receipt for donations over $250 so make sure you get one. Keep track of what and how much you give to make it easier when you prepare your taxes.

Max out retirement accounts. In 2008, you can contribute up to $44,000 ($51,000 if you’re over 50) to a self-employed 401(k) plan and $46,000 to a SEP-IRA. Your contributions are tax-deductible if you open your retirements accounts and contribute to them before December 31, 2008.

If you want more information about taxes for self-employed individuals, I recommend Working for Yourself: Law & Taxes for Independent Contractors, Freelancers & Consultantsby Stephen Fishman. The IRS website is another good resource, but you have you know what you’re looking for.

Disclaimer: I’m not a tax professional. This is advice based on research and personal experience. If you want more information about taxes for self-employed, consult with an accountant or tax attorney.