Ways to Lower Current Taxable Income

Maximize the Expenses Recognized In The Current Year Do this by paying (cash basis of accounting) or booking (accrual basis) expenses in the current year that might otherwise be recognized in future years. This is accomplished by incurring the expenditure before year-end by issuing a purchase order or paying expenses such as rent, insurance or taxes. Talk to your accountant about your particular situation.

Defer Income If delaying income to next year would result in a lower tax rate, or if you simply want to delay the payment of tax to obtain the use of the money for another year, consider ways to delay the receipt of the income. Watch out, however, for the strict rules that govern when income is earned, referred to as a "constructive receipt".

Contribute to a Qualified Retirement Plan Employer contributions to qualified retirement plans are tax deductible. Qualified plans generally mean employer sponsored pension, profit sharing or stock bonus plans that meet requirements of Internal Revenue Code section 401(a), or an annuity that meets requirements of Internal Revenue Code section 404(a)(2). There are three types of qualified plans: defined contribution, defined benefit and hybrid. If you do not have a qualified plan in place, talk to an attorney, accountant or financial advisor. In some cases, a plan must be in place before year end to be fully utilized the following year.

Increase or Accelerate Charitable Contributions Donating to a worthy cause not only does good but can reduce your taxable income. Advancing next year's payment might be considered as well, as many nonprofit organizations now accept credit cards. The charity will appreciate the earlier receipt of the money and you get a deduction. Empty your closets of old clothes, furniture and the like and donate them to a charity. Remember to get a receipt and figure out the fair market value of the goods you donate. If you're audited, no receipt means no deduction.