As the Holidays approach it’s hardly a time to think about small business taxes. But there’s little you can do after December 31st to reduce your taxes for the current year. Here’s a quick look at some year end tax tips that can help reduce taxes for 2006.

1.  Update Your Accounting: It’s important as part of your year-end tax strategy to have a good understanding of your financial situation. Spend extra time ensuring your books are up-to-date and accurate. It won’t hurt to plan time with your accountant for year-end advice, particular to your operations. 

2.  Defer Income: Any payments you can receive during the first week of January as opposed to December cuts your tax bill. Every cent earned up to December 31st, 2005 has taxes paid in April 2005; whereas income deferred to January 2006, will not owe taxes until April 2007. Depending on your income tax rates in the foreseeable new year, deferral of income can make the best sense for many sole proprietors, partnerships, LLC’s, and S corporations. Ensure your cash flow can handle the deferred income.

3.  Increase Expenses: Paying as many expenses as possible before year-end will reduce your tax burden. Stock up on truck and office supplies. Pay your bills early for cell services and insurance. Get that needed repairs and maintenance.

Equipment Purchases: If you will be buying new equipment, consider purchasing now. You’ll have to decide whether an immediate write off is best or spread out the depreciation over years. Consult with an accountant to examine your circumstance and company structure to maximize your deductions. In addition, your equipment will have to be “in use” by year-end.

4.  Exercise your plastic:  If you’re using cash-based accounting, business expenses paid via credit card in December can help reduce taxes. You’ll have write-offs for 2006 on bills that won’t be paid until 2007.

5.  Be charitable:  What you can write off in terms of charitable donations is limited by your adjusted gross income (AGI) before net operating loss carry forwards. It can range from 20% to 50% of AGI for individuals (generally, you can deduct cash donations in full up to 50%, property donations in full up to 30% and donations of appreciated capital gains assets in full up to 20%). For corporations, the amount is limited to 10% of your taxable income. Just remember that the IRS requires you to have a written receipt for any donation of $250 or more. If you did not receive a receipt for a donation, you should contact the organization and request written documentation. If you made any non-cash gifts (e.g., stock) worth $500 or more in total, you must file a Form 8283, Non-cash Charitable Contributions, with your tax return to claim a deduction.