There's Still Time to Reduce Your 2009 Tax Bill

Alternatively, you might waive any carryback election and instead carry the loss forward for up to 20 years. This won't save you taxes now but could be very valuable in the future. If tax rates increase, as the talk in Washington is indicating, the net operating loss you carry forward will offset income that would otherwise be taxed at a higher rate. For instance, say you paid 25% on your business profits in 2007 but expect to be profitable in the future, when you anticipate being in the 36% bracket (the bracket likely to apply to certain higher-income taxpayers, which includes many small business owners). By not using the carryback and instead using the carryforward, your 2009 loss saves you 9% more!

Decisions for equipment purchases
If your business buys equipment, computers, office furniture, and machinery expected to last more than a year, you write off the cost using depreciation. This is an allowance fixed by law for various types of items; typically, depreciation spreads the deduction for the cost of the item over five or seven years. However, for purchases in 2009, you can claim a deduction for the cost that is more than the usual depreciation allowance. There are two ways to get a greater write-off:

- Elect first-year expensing (also called the Section 179 deduction). This lets you deduct the full cost of the equipment up to a total write-off of $250,000. However, to benefit from this deduction, you must be profitable, so you won't make the election if 2009 wasn't a good year for you.

- Take bonus depreciation. This lets you deduct 50% of the cost of the item, in addition to any first-year expensing and regular depreciation. You aren't required to use bonus depreciation and can elect not to claim it. This election out of bonus depreciation may make sense if you expect to be profitable in future years when the regular depreciation allowances will be worth more to you because you'll be in a higher tax bracket.

Retirement plan choices
If you were profitable in 2009, you can shelter your income and save for retirement by using a qualified retirement plan. Usually, you have to set up the plan by the end of the year by signing the paperwork with the mutual fund company or other financial institution holding your plan in order to make your annual tax-deductible contribution. However, you have until the extended due date of your 2009 return to set up and make a contribution to a Simplified Employee Pension (SEP) plan for 2009.

For example, say you are a self-employed individual showing a profit on Schedule C. After subtracting half of the self-employment tax (to cover Social Security and Medicare taxes), your net profit is $100,000. You can choose to put up to $20,000 (20% of $100,000) into a SEP. If you obtain a filing extension, you have until October 15, 2010, to sign the paperwork and put the money into your SEP for 2009 so you can then take a deduction for this on your 2009 return.

Final word
These are not the only moves you can make after the year has closed to favorably affect your 2009 taxes. For instance, if you own multiple rental properties that produce a net loss, you may qualify as a "real estate professional." This will let you avoid the passive activity loss limit and claim your net loss on your tax return. If you meet the tests for being a real estate professional, you'll have to make an election by attaching a statement to your return. Best advice: Talk to a tax advisor who can review these and other tax moves to help you save on your 2009 return.