It’s an expensive mistake for writers and other freelancers to think of taxes as a once-a-year affliction caused by the need to grapple with 1040 forms or to assemble records for their accountants. Federal and state tax planning need to be a year-round concern on par with ongoing business and personal financial planning.
Those with the foresight to stay on top of changes in tax law and plan ahead can nimbly sidestep pitfalls while benefiting from scores of perfectly legal opportunities to decrease, postpone, or escape paying substantial amounts that would otherwise enrich the IRS.
While that doesn’t mean important financial decisions that affect investing, borrowing, and spending should be based solely on tax considerations, it does mean that those decisions warrant at least some consideration of their tax consequences.
Start early on tax planning. Allowing enough time to implement strategies can generate dramatic savings – maybe thousands of dollars – for this tax year and give a head start on tax planning for 2017 and beyond.
Let’s suppose a writer anticipates that her income from writing and other sources (and tax tab) for 2016 will be higher than for 2017. A way to lower taxes is to push the receipt of 2016 writing income past New Year’s Eve by postponing end-of-year billings until after Dec. 31, or bill clients so late in December that payment this year is unlikely.
Do the reverse for existing invoices. Don’t press for payment in 2016 of money owed, provided that tactic doesn’t jeopardize collection. What about business expenses? Pay them in 2016 rather than deferring payment until 2017.
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.