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Year-End Tax Planning, It's Not Too Late to Lower Your Taxes

Stephen Fishman
Tax expert and contributor MileIQ

2019 is fast approaching. But, if you're self-employed, it's still not too late to take steps to lower your 2018 taxes. Here are four ways:  

1. Buy Business Equipment

If you've been thinking about buying equipment to use in your business, do so by the end of the year. This can be a car, computer, software, office furniture, or anything else. You'll likely be able to deduct the entire amount you pay for the item on your 2018 taxes.     A new tax law, the Tax Cuts and Jobs Act, went into effect this year. Among other things, it established one hundred percent bonus depreciation for business property purchases. Thus, you can deduct the entire amount you pay for the property in 2018. Otherwise, you'd have to depreciate the cost over several years. This assumes you use the property one hundred percent for business. Your deduction is less if you use an item for both personal and business reasons. Also, there is an $8,000 cap on bonus depreciation for passenger cars.     By the way, you can buy business equipment with your credit card and deduct the cost for 2018. And you don't need to pay off the balance in 2018 to take this deduction.  

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2. Establish and Fund Retirement Plans

If you don't have one already, set-up and fund a retirement account. There are retirement accounts designed for the self-employed and small business owners. These accounts provide enormous tax benefits. You get a tax deductions for your plan contributions. And you don't pay tax on your investment earnings until retirement. There are many types of retirement accounts: solo 401(k)s, IRAs, SEP-IRAs, Simple IRAs, and Keogh plans.    There are limits to how much you can contribute to a retirement account each year. The limit depends on the type of account and how much money you make. For example, the maximum contribution for a solo 401(k) plan is $55,000. But you can contribute $55,000 if you're age 50 or older. That's a lot of money you can deduct from your taxable income. You can contribute to these plans and take a deduction for 2018 up until the time your tax return for the year is due. This is April 15, 2019 or October 15, 2019 if you file an extension. But you must establish a solo (401)(k) by December 31, 2018 to take 2018 deductions for your contributions.  

3. Sell Losing Stocks

The stock market has been going down lately. If you have losing stocks, you can tax harvest your losses. You sell enough before the end of the year to have at least $3,000 in losses. You may deduct up to $3,000 of these losses from your ordinary income for 2018. This is the income you make from your business.    

4. Open an HSA

Most self-employed people pay for their own health insurance. If you're one of them, consider opening a Health Savings Account (HSA). An HSA is like a health IRA combined with a health insurance policy with a high deductible. You can deduct contributions to your HSA. You may then use the money to pay almost any uninsured health-related expense. And you don't have to pay any taxes on these withdrawals. For 2018, singles can contribute up to $3,450 and marrieds $6,900 to their HSAs. People over 50 can contribute $1,000 extra. If you set up your HSA and contribute by December 31, 2018, you can make a full year's worth of deductible HSA contributions for 2018.    [table id=39 /]    

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