The only time most of us think of doing something about our federal income taxes is once a year — the hours we spend actually grappling with Form 1040 or when gathering records to deliver them to a paid preparer. What we should do is make tax planning a year-round concern and position ourselves to take full advantage of the many opportunities that are available to lessen the amount that is siphoned off each year by the IRS. The savings can amount to many thousands of dollars. What follows are some tactics that not only can save taxes for 2014, but even provide a head start on 2015 as well.
Timing receipt of income pays off for freelance writers. The IRS requires most freelance writers and other self-employed individuals to use the cash method of accounting, under which income isn’t counted until cash, a check, or an e-payment is received and expenses aren’t counted until they’re paid.
How does the IRS apply that requirement to a hypothetical freelancer we’ll call Phyllis Neff? Like most other writers, Phyllis has a good deal of flexibility on whether to report income or deduct expenses in 2014 or 2015. As part of her end-of-year financial planning, therefore, she should review perfectly legal tax-trimming tactics that must be taken by Dec. 31 if they aren’t to be lost forever.