Before you pop the champagne cork on New Year's Eve, invest in a few minutes of tax planning. True, taxes might not bring thoughts of confetti in the air or New Year's kisses. But making use of these seven strategies can go a long way in reducing your tax burden.

  1. Establish retirement plans. When money is tight, it might be tempting to pass on retirement plan funding this year. Don't do it. Saving for the future each and every year will give your nest egg a boost, and it will also help come tax time.

    By setting money aside in qualified retirement plans, the contributions lower your taxable gross dollar-for-dollar, hence they are great for reducing tax liability,' said Theresa Rosen, a certified financial planner with Prudence Financial in Sudbury, Mass.

    But to start a new a Solo 401(k) plan or a 401(k) for a larger company, you must get all your paperwork in to your investment company by Dec. 31.
    Employee contributions to these plans must also be made before the end of the year, but the employer contribution can be delayed until your tax return is filed, said Vince Pallitto, a certified financial planner and certified public accountant with Summit Asset Management in Florham Park, New Jersey.
     
  2. Invest in an IRA. "Traditional, Roth and SEP-IRA contributions must be made by April 15, 2010," says Bonnie Lee, a certified public accountant and Entrepreneur.com's tax columnist.
    If you are planning to get an extension on filing your return, contributions must be made before the extension filing deadline.

    "For example, if you file the 2009 tax return on February 10, the IRA contribution must be in by February 10," Lee says.

    But remember: the sooner you invest, the sooner your investments can start gaining in value.
     
  3. Defer income. In this economy, it can be a struggle to get clients to pay their bills. But if your taxable income is high for 2009, you may want to allow clients to keep their money a little bit longer. By deferring income until 2010, your 2009 tax burden may be a little lower.

    Similarly, if this has been a tough year for your business but you expect income to pick up significantly in 2010, you might want to collect as many payments as possible by the end of the year to reduce your 2010 taxable income.

    A note to parents: If in 2010 you plan to apply for the first time for financial aid for your college-bound child, it would be wise to keep your income as low as possible, Rosen says.
     
  4. Spend, spend, spend. Increasing expenses, such as paying off bills or other debts or paying out bonuses to employees, will help increase your deductions for 2009. If you've been delaying major purchases for your business, now is a great time to buy. Not only can you find great deals as businesses try to clear out inventory, you'll have more deductions.

    "Generally, capital improvements and new equipment should be capitalized and depreciated over a 5, 7, or 10-year period or longer," Pallitto says. "However, Section 179 of the Internal Revenue Code allows you to expense up to $250,000 of new equipment purchased in that year."
     
  5. Give to charity. If you plan to donate money or goods to charity, do it before December 31 so you can make the deduction and reduce your taxable income.
     
  6. Prepay taxes, (maybe). Prepaying taxes can give you an extra deduction this year, but consult with your tax preparer first. You'll need to determine if the early deduction will be worth losing the cash flow today and the deduction for 2010.

    Also make sure you'll qualify for the deduction.

    "If you are in the Alternative Minimum Tax, state and local taxes are not a deduction," Pallitto says.
     
  7. Visit the doctor. To deduct medical expenses, you must spend more than 7.5 percent of your adjusted gross income. If you've had a lot of medical expenses this year, review your receipts and see if you're close to the 7.5 percent threshold you'd have to reach to be able to deduct those costs. If you need a few more medical expenses, visit the doctor (or the dentist, or the optometrist) or fill prescriptions before the year ends.
     
  8. Review your portfolio. Consider dumping your losing investments before the end of the year, especially if you want to take profit on some winners.

    "Capital losses are limited to $3,000 per year," Lee says. "You can take capital losses against other capital gains."

    If your capital losses exceed $3,000, you can carry those losses over to future tax years to offset future capital gains.

    Before you sell, check with your tax preparer or financial advisor to make sure the move is right for you.