Don't Be Afraid To Pay Some Tax

Tax rates are as low as they have ever been, and possibly as low as they will ever be again. Take advantage of the 15% bracket. Use it up. It is better to pay tax today at 15% than 10 years from now at 25%. The 15% bracket stops at $38,000 for single, $75,000 for married. This is “taxable income.” All your itemized deductions and personal exemptions come out first. Subtract them from gross income, or total income, to calculate your taxable income.

Always be sure you have enough gross income to use up all your deductions and exemptions. For an average family, deductions and exemptions usually total about $22,000. If possible, you want to keep your income and your tax high enough to use up the child credit and the day care credit. These credits are mostly non-refundable and do not carry-forward.

Self-employed people have a great ability to control their taxable income: bonus depreciation; section 179 expense; timing itemized deductions; managing the invoicing and collection process; and prepaying expenses at year end. All these methods can be used to your advantage to target a certain income range.

New businesses are a prime candidate for targeting income. They have too many expenses the first year. Don’t waste them!!! Try and break even the first year. The loss may offset other W-2 income, but you are wasting 15% SE tax the second year on the amount of the loss.