It is necessary to keep constant watch on the business transactions during the year from tax angle. However there are some specific tax-saving strategies which can be applied at the end of the year. They can be very useful for reducing your tax liability.

Here are some of the very popular tax-reducing strategies which can be used at the end of the year:

1. Contributing to a retirement plan – you can contribute a good amount to your retirement account and bring down your tax liability. If you don’t have such an account, it is a good time to set up one. The contribution to such plan reduces your income and consequently reduces your taxes. There are some retirement plans having contributions deadline beyond the end of the year. For instance in case of a solo 401(k) plan, you cannot contribute after the end of the year. So it’s not advisable to wait.

There is one excellent plan called the simplified employee pension plan (SEP-IRA), which is very suitable to self employed people and owners of small business. You can contribute (and deduct) $46,000 for the year 2008 under this plan.

2. Take the benefit of section 179 deduction – if you have purchased any equipment up to $125,000 worth, you can straightaway claim a deduction for the entire amount for the current year. There is no need to keep on depreciating it over a number of years. The only condition for such a deduction is – the equipment must be installed and it must be running before the close of the year. And there is one more important tip – this deduction is not limited to equipment but also extends to a software package.

The limit under this deduction is not carried forward to the next year. It goes off at the end of the year. So if you do not use it, you will be losing it. So you can make purchases of necessary equipment and software for your business at the end of the year and claim the entire amount as a deduction.

Remember, this deduction cannot exceed your taxable income. Also you cannot claim deduction under this section if your purchase is more than $500,000 worth of the qualifying assets. These warnings are essential because you may end up purchasing some equipment and later find out that the deduction is not available!

3. Managing your revenues – just deposit less money in your business account at the end of the year, or else you can Invoice less for your clients in December (you can always invoice them in January!) In this strategy you need to be very particular about your customers. If you’re likely to lose money due to late invoicing, then it is advisable to invoice those customers as soon as possible. Remember, you cannot manage revenues by not depositing a check already received.

For a valid check received by you before the end of the year is considered your income for that year even though you have not cashed the check or not deposited the check in your account. So never sit on a check to manage your revenues.

4. Increase your business expenses – one of the important tax strategies employed by small business people is to prepay the expenses. You may prepay the rent. Remember, pre-paying the expenses for the next year will have impact on the tax position of the next year. The profits for the next year will be increased due to proportionately less expenses charged! So you need to keep in mind this aspect while pre-paying the expenses.

And another important point, as you want to pre-pay the expenses, you customers may also think similarly. And you need to look after your cash flow situation also. While making all these adjustments, you need to keep an eye on AMT. By increasing your income and ignoring AMT aspect, you may land up in trouble.

This is a good time to evaluate the services of your tax consultant. If your consultant is filling your forms routinely without putting his mind on your details, it is right time to get rid of him.

Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous eBook Stop donating your money to IRS which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.