Smart Year End Planning – Tax Deductions

by GirlShrink · 4 comments

in Home Finance,Money,Relationship Dating

Guest Author: Drew Miles

There are three main areas we need to keep in mind as the year ends:

1. Taxes

2. Corporate formalities

3. Planning for next year

Revisit the idea of converting your 10 largest expenses

This is an ongoing process that should be done at least twice the first year. It’s not realistic to expect you will convert all of your biggest expenses the first time around because it’s too big of a task–this is a habit needing to be developed over time. Our largest expenses, habits, and businesses all change over time. As your life evolves, so should your deductions, so keep current.

Strategy: upstreaming income

The goal of upstreaming income is to shift income from this tax year to the next tax year. Whatever your operating account balance is on December 31 will get added, as of January 1, to your last year’s income. If you have a $50,000 balance, for example, going into the next year, that’s taxable income. You therefore should upstream the money, making it no longer taxable for that year. This strategy is applicable if you have an S Corp, partnership, limited partnership or sole proprietorship.

How to upstream income

Upstreaming income is accomplished by setting up a new entity such as a management company with a different year end than your business. A business’ income can then be shifted out of the 2006 tax year to 2007. You will want a contract and invoices to reflect this agreement between your business and management company. Move the $50,000 balance to your management company with a June 1 yearend, for example. The money should be moved ideally at least on a monthly basis, not just once at the end of the year. I recommend taking five to 10 checks out of your checkbook and put them in a file for the upcoming year. In January, if you find out you had some expenses you missed it’d be a lot better to have a check in sequence that you can write from December.

Lisa Angelettie, M.S.W., is a psychotherapist, author, and life coach. She has been helping people make smarter life choices since 1998. Get more free tips like this when you subscribe to the GirlShrink newsletter .

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  • Online Tax Refunds

    My parents are claiming me as a dependent on their taxes. I made a monthly tax deductible cash contribution to a charity. I was wondering if I could itemize the deductions, or if my parents could since they claim me.

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    I’m not having too much luck researching on the internet what tax deductions are used by makeup artists. Any tips or idea where I can find this information other than the obvious (tax preparer)?

  • GirlShrink

    Believe it or not, I have had great success getting tax advice from the experts over at Many of the tax experts there were old IRS employees or they have been doing small business taxes for many years and have a ton of great advice. It’s free, so it’s worth a shot. Good luck with your taxes this year!

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