Take steps to increase deductions. The larger the number of deductions you claim, the smaller your taxable income will be and the less taxes you'll owe. One of the best ways to boost deductions for cash-basis businesses is to pay as many of your business expenses as possible during this year. With the cash method of accounting, income is taxable when you receive it, and expenses are deductible when they are paid. To beef up those deductions, stock up on business supplies or get equipment or vehicle maintenance done this month if you planned to incur these expenses in 2003 anyway. You also will want to consider prepaying some deductible business expenses, including any rent, taxes and insurance due on the first month of the new year.
Thinking about buying some new equipment? Do it now and place it in service before the end of the year. Under the federal expensing provision, you can deduct the full cost of your equipment purchase rather than depreciating it over several years. The amount you can deduct for qualifying equipment in 2003 is $24,000. That will increase to $25,000 in 2003. The $24,000 is reduced for every $1 of new equipment in excess of $200,000.
Beware: Under the expensing provision, you're not allowed to expense more than the amount of your trade or business income, and thus produce a net loss. Remember, you can use a credit card to charge your purchase before the end of the year and still claim the deduction in 2002--even if the bill is not paid until next year as long as the equipment is placed in service before year-end.
Source: "Get Your Tax Straight"