At this time of year, it often feels like there are a lot of outgoing expenses—gifts, holiday
entertaining and all the extras that go along with the holiday season. However, there are
things that freelancers can do before December 31 to offset extra spending. The basic
strategy is to maximize all available tax savings for yourself so that you owe less tax
April of next year. Here are eight year-end tax tips to use now:
1. Accelerate tax deductions. Accelerating any eligible tax deductions you may have
and deferring income will save you money on your 2018 tax return. Reducing taxable
income is the cornerstone of any tax-mitigation strategy. Also, if you have revenue that
you can defer, such as self-employment income, try to do so especially if you anticipate
a large tax bill coming your way in the future.
2. Max out retirement contributions. Contributing as much as possible to a qualified
retirement account such as a 401(k) or an individual retirement account (IRA) to shelter
the maximum amount from taxes is key to saving tax dollars. The 2018 contribution
limits are $18,500 for a 401(k) and $5,500 for an IRA (not including catch-up
contributions for those 50 years of age and older).
3. Delay large gifts. If you are considering making a significant monetary gift which
would result in gift taxes, it may be advantageous from a tax perspective to delay it until
4. Revisit your business structure. If you own a business and you haven’t changed
your entity type for several years, you may want to consider if another entity type may
offer you tax advantages. This is one tip that should likely be done in concert with a tax
professional so that you are certain that any entity changes you make will be beneficial
5. Postpone debt cancellation. If you owe money, keep in mind that the reduction or
cancellation of debt usually results in taxable income to the debtor. If you are planning
to negotiate with creditors involving debt reduction, consider waiting until January to
defer any debt cancellation income into 2019.
6. Accelerate charitable contributions. Make charitable contributions now to reduce
your 2018 tax burden. ‘Tis the season of giving, so if you are thinking about supporting
tax exempt 501(c)(3) organizations this year, don’t delay. Be sure to get a receipt for
your contribution so that you can itemize it on your tax return (as long as your
deductions will not exceed the new larger standard deduction that you’ll see on your
7. Wait to invoice for year-end work. If you’ve had a good year and your income is
pushing you into a higher tax bracket, the last thing you need is to add additional
income for the current tax year. This is why it may be beneficial for you to wait until January 1, 2019 to invoice for your December freelance projects. If you do, the income
you earn won’t be taxed until your clients pay.
8. Consider purchasing equipment for your business. Under tax reform, Sec. 179
business expense deductions and bonus depreciation for first-year businesses are
expanded. As such, now is the time to invest in equipment such as computers or other
eligible assets for your business so that these deductions can help you reduce your
2018 taxable income.
Regardless of the season, these tax-saving tips make a great gift to you and your
freelance business. Even though this time of year is hectic (as well as expensive) it’s
worth taking a few minutes to implement the ones that apply to you before the end of
the year so you’ll have more cash in your pocket come next spring.
Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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