Date: December 15th 2009

If your business income is reported on your Form 1040 and taxed at your personal rates (this occurs with a sole proprietorship, S corporation. limited liability company or partnership), your personal tax rate brackets are not scheduled to go up. Generally the strategy of deferring income into 2010 while accelerating deductions into the current year will make sense with a relatively flat income expectation. If you project higher income for 2010 then accelerate income into 2009 and postpone deductions into 2010.

Where you use cash-method accounting for tax purposes and you project income to be constant and within the same tax bracket for 2010, you should pay all expenses possible in 2009. If you pay by credit card (not revolving charge) the deduction can be taken when you make the credit card payment. If you pay by check, you can deduct the expenses in the year you mail the checks (even if the checks are not cashed or deposited until the next year). You can prepay expenses as long as the economic benefit from the prepayment lasts twelve months or less. You should also delay invoices. You do not have to report income until you receive cash or have the checks in hand through the mail.

Think about using the Section 179 first-year depreciation deduction for certain vehicles and other equipment. There is also available a 50% first-year bonus depreciation for qualifying new equipment and software place in service by December 31, 2009. Check with your tax advisor for qualifying rules and restrictions.

Please comment or post with your thoughts on tax strategies.

© Rick Riebesell 2009. All rights reserved.

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