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Countdown: 10 moves you can still make to cut your taxes

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in Small Business Tax,Small Business Tax Deduction Strategies

As the days in the year dwindle, you may think you’ve done everything possible to reduce your ’07 tax liability. But we still have a few tricks you might use as late as the final week of the year. Here are 10 ways to beat the clock:

1. Set up a Keogh plan. If you’re self-employed, you can make tax-deductible contributions to a Keogh plan. But the plan must be in existence before Jan. 1, so complete the paperwork this month. Then you have until your 2007 tax return due date, plus extensions, to make contributions for 2007. Tip: The deductible contribution limit for the 2007 tax year is the lesser of 20% of your self-employment income or $45,000.

2. Buy a personal vehicle. You can choose to deduct either the state income tax or the state sales tax you’ve paid in 2007. If you buy a new vehicle in December, it may tip the scales in favor of the sales tax. Tip:  In lieu of compiling the actual sales tax, you can base your deduction on a state-by-state table plus the tax on big-ticket items like cars and trucks.

3. Stock your supply cabinets. If you buy everyday supplies for your business at year-end, you can deduct the expenses on your 2007 return. Tip: Assets that have a useful life of several years generally must be depreciated over a period of time.

4. Postpone business invoices. Generally, you don’t have to pay tax on amounts your business has billed until you actually receive payment, even if you performed most or all of the work this year. Tip: This strategy works especially well if you’re self-employed and have complete control over your billing practices.

5. Lock in extra mortgage interest. Prepay your January mortgage payment in December to effectively give you a “13th” mortgage interest payment for 2007.

6. Cash in on worthless stocks. You can claim write-offs for stocks that have become totally worthless. Treat them as a capital loss. Tip: If the stock isn’t totally worthless, sell it and pocket  a regular capital loss.

7. Prepay state and local taxes. Send in state and local tax payments in December, so you can deduct the payments on your 2007 return. Tip: This strategy won’t do any good if you face alternative minimum tax (AMT) liability for 2007.

8. Enroll early for second semester. If you will qualify for a deduction or a credit for higher education expenses, consider paying the tuition costs for your children in December, even if the amount isn’t due until January or later.

9. Fix up the business premises. If you make minor repairs to your business building, you can deduct the cost in 2007. Tip: Large improvements to the premises must be capitalized, not deducted, so keep repair work separate.

10. Renew tax publications. You can deduct the cost of tax advice—including subscriptions to publications such as Small Business Tax Strategies—as a miscellaneous itemized expense. If the renewal covers a 2008 subscription, you can write off the cost this year if you pay it before Jan. 1.

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