The best thing you can do is to think about taxes before the year ends. Most people wait until the tax filing deadline before they ask how they can reduce their income taxes. Unfortunately, once 2021 ends, there’s very little you can do to minimize your taxes for 2021.

To start your tax planning, you should review your income, deductions and withholdings before the year ends. Which means you need to get your bookkeeping caught up! You should use a software program, such as QuickBooks, Quicken Home and Business, or spreadsheets to keep track of your income and expenses for your business.

Once your bookkeeping is caught up… do you expect your home business to have a profit or a loss this year?

If you have a profit, here are some tax planning tips to help minimize your home business taxes this year:

1. Defer your income. If you have a home-based business, and it looks like you’ll have a good profit this year, consider invoicing your clients in January instead of December, to defer the income to next year. Or, just wait until the end of December to send invoices. Any money you receive in January will go on your 2022 tax return, not 2021.

2. Accelerate expenses. Do you need to purchase any inventory? What about supplies? Does your computer need to be replaced? If you’ve got a profit for 2021, consider purchasing inventory, supplies or other items that will need to be replaced soon this year to reduce your taxable profit.

In addition, if you itemize your tax deductions, make sure you pay all mortgage payments, property tax, medical expenses, etc. this year, even if they aren’t due ’till next year, to help increase your tax deductions for this year.

3. Contribute the maximum amount to retirement plans. As a home based business owner, you have several retirement plans to choose from. You can set up a traditional IRA, a SEP IRA, a Simple IRA, or even a 401K. The maximum contribution amounts vary based on the retirement plan, but these plans allow contributions from $4,000 up to $44,000 per year. Contributing to a retirement plan is a great way to maximize your retirement savings and to minimize your taxes at the same time.

4. Give to charity. Although charitable donations don’t reduce your business income, they do reduce your taxable income if you itemize your deductions. Gifts of cash or goods are a great way to help reduce your tax bill this year.

On the flip side, if you expect a larger profit next year, or if you expect to jump into a higher tax bracket next year, it’s best to report as much income this year, and to defer as many expenses as possible ’till next year.

Either way, year-end tax planning can really help minimize your taxes. But you have to make it a point to review your taxes before the year ends. Once 2021 is gone, so are your tax planning opportunities for 2021.