I’ve recommended credit cards in the past as a simple way to manage freelancing expenses. I got the chance to interview the CPA who I send my taxes to, Travis Raml, for another article not too long ago and something he said stuck with me.
Travis explained that you can actually minimize your taxes for 2009 with a credit card: “One of the easiest ways to minimize taxes is expense acceleration. Most small business owners are on the cash basis of accounting and thus can deduct expenses when paid. So with the year’s end on the horizon, if you have expenses you know you’re going to pay in the next month or so, it’s probably sensible to make the purchase or payment now versus waiting until the next calender year.”
You can put those expenses on your business credit card now and get the tax deduction for 2009. Travis added, “…if you pay via credit card the expense is deductible in the year the purchase is made, not when you make the payment to the credit card company. This strategy can also be used billing clients as you only record the income when the cash is received. If you delay billing clients for a couple weeks towards the end of the year, it is more likely the payment will not come in until January or February at which point it would become taxable the next calender year.”
Of course, you’ll want to talk to your own tax preparer to make sure that you handle your taxes appropriately, but with just a few days until 2010, it may be worth taking a look at any expenses you’re expecting for January.