Q. I’m a self-employed consultant. What can I do before the end of the year to reduce my 2009 taxes? — Fred A. There are several things you can do. If you were planning to get any new equipment for your business in the next few months, consider making the purchase before Dec. 31 so you can benefit from the tax break for 2009. You can write off the cost of equipment you use for your business, such as a computer, printer, fax machine, copier and phone system. You can also deduct the cost of office supplies and business-related software. Buying items you don’t need is never a smart financial move. But if you were going to make some of these purchases soon, you can time them to lower your 2009 taxes.
If you have any self-employment income, then you can open a special small-business retirement account that lets you lower your taxable income now and save money tax-deferred for the future. The two best options are a solo 401(k) and a Simplified Employee Pension (SEP).
A solo 401(k) may be your best bet if most of your income is from self-employment. You can contribute $16,500 to a solo 401(k) in 2009 plus 20 percent of your net business income, up to a maximum of $49,000 in 2009.
You can also make a catch-up contribution of $5,500 if you’re 50 or older. You can’t contribute more than your business income for the year, but even if you earn just $16,500 from self-employment, you can contribute the entire amount to a solo 401(k). You must open a solo 401(k) by Dec. 31, and you have until April 15, 2010, to make your 2009 contributions
Don’t miss out on valuable deductions because you’re scrambling in April to find the paperwork to back up your deductions. Now is a great time to look at Schedule C and the Instructions for Schedule C to remind yourself about everything you can deduct — including equipment, business travel and lodging, 55 cents per mile driven for business in 2009, tolls and parking fees, phone calls, mailings, printer cartridges, paper, professional fees, and part of the cost of business meals.
For more information, go to irs.gov/businesses/small/index.html. Star Ledger.