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Smooth Moves

There's still time to lower this year's tax bill.but don't wait too long: Time's running out.

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This story appears in the December 2000 issue of Entrepreneurs Start-Ups magazine.

December provides an opportunity for entrepreneurs to think creatively-not about gift-giving, but about lowering this year's tax bill. There's still time. If you use the cash method of accounting for tax purposes, you can manipulate the timing of both your income and expenses. Do you expect a lower marginal rate next year? If so, delay income until 2001 and accelerate expenses into this year. (Reverse that ploy if you expect higher marginal rates next year.)

On the income side, for example, hold off on sending invoices until January. If payment is not received this year, it is not reportable as year 2000 income. To accelerate deductions, pay bills in advance. Whether paying by cash, check or , you get the deduction if the transaction is posted this year. However, you may not deduct prepaid expenses that deliver value more than 12 months past year's end, such as subscriptions or insurance premiums.

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