There's nothing more likely to prompt last-minute moves than the approach of Dec. 31, which is not so much creeping up, but in fact, is about to pounce on us. And so, with the year's end come tax-tip instructions from a number of people in our line of business.

Entrepreneurs and owners of small businesses, take note: "Our increased focus will be on those individuals who are filing 1040s and are running businesses that are not incorporated," Mark Everson, the IRS commissioner, told MarketWatch in a recent telephone conference. "The biggest portion [of unpaid tax] is in underreporting of income by individuals. Typically, that's individuals who are filing Schedule C," Everson said.

That's the form used by small, unincorporated businesses.

Some say the IRS is already focusing on small businesses. "We've definitely seen a trend over the years that the IRS is targeting Schedule C filers," said Maureen McGetrick, senior tax manager at BDO Seidman, the Chicago-based accounting firm.

So we culled the following advice from a number of small-business tax mantras, including those from small-biz expert Darrell Zahorsky, Seattle-area management consultant Terry Corbell, CNNMoney and MarketWatch. Here we go:

1. Update your accounting.
It's important as part of your year-end tax strategy to have a good understanding of your company's financial situation. Spend extra time ensuring your books are up-to-date and accurate. It won't hurt to plan time with your accountant for year-end advice, particular to your operations.

2. Defer income.
Any payments your company can receive during the first week of January as opposed to December cuts your tax bill. If you can stand the effect on your cash flow, things that you might ordinarily bill for in December, you wait and bill in January. Or you bill them so late in December that you would not expect to be paid until January. Every cent deferred until January 2007 will not owe taxes until April 2008. Any deferral strategy will depend on your profit and losses for the year and business legal structure (LLC, partnership, corporation, etc.)

Keep in mind that this works only if the business's method of accounting is on a cash basis. Ensure your cash flow can handle the deferred income.

Don't forget to push any early 2007 charitable donations back to 2006. Make sure you get a receipt for the tax deduction.

3. Increase expenses.
Buy stuff. One way to reduce your taxable business income is to take advantage of available deductions. A tax rule known as Section 179 — which is geared to small businesses so they don't have to maintain depreciation records — allows companies to deduct up to $108,000 for assets that are used in their business and that are bought and used in that year.

Purchasing items that your business will require in the immediate future will maximize deductions for this year. Consider stocking up on office supplies or equipment now, if cash flow permits.

• Office supplies: Stock up on printer paper, ink cartridges, stationary and other office items.
• Pay bills early: Before the new year, pay your bills for such things as cellular services, subscriptions, rent, insurance and utilities.
• Equipment purchases: Printing machines, industrial robots, packaging machines — you'll have to decide whether an immediate write-off or spreading out the depreciation over years is best. Consult with an accountant to examine your circumstance and company structure to maximize your deductions.
• Other items: This category includes pre-payment of subscriptions, travel bookings, equipment repairs and maintenance.

But consider consulting a tax professional before attempting to claim this perk, as there are plenty of caveats. For instance, you need to be using the item for business at least 50 percent of the time. Moreover, excluded are property purchased from a relative, inventory for resale, or real estate.

Just keep in mind that if you will be buying new office equipment, you may need to factor in depreciation. In addition, you will have to use the equipment in your office by the year's end.

Related, and depending on your accounting methods, you may wish to check inventory for goods that have been damaged or have become obsolete. The drop in market value of the inventory can provide your company with added deductions.

4. Pay bills now, not later.
Consider paying as many of your business expenses as you can to take full advantage of the deduction. Pay any outstanding bills such as utilities, rent, insurance and healthcare before Dec. 31 to take the deduction this year and lower your tax bill some more. That also goes for year-end bonuses to employees, which can be paid just prior to Dec. 31 to get the deduction in the current year.

Don't forget health-insurance premiums, as medical insurance premiums and long-term-care premiums are 100 percent deductible for self-employed individuals. The medical premium is an above-the-line deduction. With the long-term-care premium, there are dollar limitations depending on your age.

On a related note, there is a new provision for 2006 that allows for a refund of the telephone excise tax. Any business with a phone is eligible, and the IRS has developed a formula to simplify the calculations for the refund amount.

5. Contribute to a retirement plan.
While you can often delay your 2006 retirement-plan contributions up until the day your taxes are due, some plan rules require you set up the plan by year-end. So make payments to your retirement plan or set one up before year's end to reduce your income for this year. Check the contribution limits for your type of plan, as different types of plans (e.g., Keogh, Simple, SEP) have different contribution limits and different deadlines.

Further, consider this one reason new business owners should prepare for a tax hit: Social Security taxes.

"For people who are really just starting out, remember that essentially the net income that you're going to report on that Schedule C is going to be treated as self-employment income and subject to the self-employment tax," Mel Schwarz, a partner in the national tax office at Grant Thornton, told MarketWatch. That is, you'll likely face Social Security tax on the first $94,200 of wages in 2006 (that figure increases every year, rising to $97,500 in 2007). Although most employees get that tax hit in their paycheck, "for someone who ... does not have wages from some other source that take them over the Social Security limit, that additional self-employment tax can sometimes come as a surprise," Schwarz said. There are plenty of rules related to this tax.

It should go without saying that these year-end tax tips will apply differently to each business owner's situation and accounting method. Take the time to review the best strategy with a professional advisor to find the best strategy for your business and make the most of the year-end tax planning for your small business.

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