By Gary J. Schwartz, C.P.A.

As the end of the tax year approaches, it is most important and useful for both small business and individual taxpayer's to make the most out of taking the bite out of tax time. To lower your tax bite, it is wise to take certain steps at year end. Numerous strategies exist to help you, including reviewing professionally developed year-end tax checklists, performing a marginal tax rate analysis to ensure that you won't be pushed into a higher tax bracket unnecessarily, and postponing income and accelerating deductions (or vice versa).

Year-end tax planning and also investment decision - making may sometimes result in substantial tax savings. Year-end tax planning primarily concerns the timing and the method by which you report your income and claim your deductions and credits. The basic strategy for year-end planning is to time your recognition of income so that it will be taxed at a lower rate, and to time your deductible expenses so that they may be claimed in tax years when you are in a higher tax bracket.

In essence, you should try to accomplish the following:

1) Recognize income when your tax bracket is lower

2) Pay deductible expenses when your tax bracket is higher

3) Postpone the payment of tax whenever possible

A marginal tax rate analysis involves understanding the difference between your marginal tax rate and your effective tax rate. If you know the rate at which your next dollar of income will be taxed, you may be able to engage in planning that will prevent you from being pushed into a higher tax bracket unneccessarily.

Year-end tax planning for small business is slightly different than it is for individuals. The result is the same but the strategy is a little different. For instance, any payments your company can receive during the first week of January as opposed to December cuts your tax bill. Income earned up to December 31 has taxes paid in April of 2005; whereas incomedeferred to January 2005 will be paid out in 2006. Purchase items your business will require during the immediate future to maximize deductions for the current year. Also, if you need to purchase office equipment or other types of capital expenditures consider purchasing them and benefit by the lump sum depreciation method or take advantage of additional accelerated depreciation on capital purchases.

Another year end tip includes reviewing your ending inventory. Depending on your accounting method, damaged or obsolete inventory denotes a drop in the market value and can provide your company with added deductions. Finally, maximize contributions to a retirement plan or initiate a new plan and take full advantage of the various plans available that give rise to lowering your income tax burden and preparing for the years ahead.

These tax saving saving tips that were discussed briefly are just a few basic ways in which almost every taxpayer can easily help to reduce tax liabilities with minimum effort. Aside from the do's and don'ts of tax savings, I can't stress enough the importance of planning and implementing the necessary guidelines within the tax boundaries for the benefit of every taxpayer. Don't wait until year end to find out that you have a tax burden or you were unaware of tax strategies. Let everyone's New Year's resolution be focused to include that anticipated tax planning and business strategies puts you in control of year end suprises.

Gary J. Schwartz, C.P.A.
Phone: 516 766-8482
Fax: 516 766-1278