There are many ways that you can use information about what tax bracket you’re in to potentially lower the amount of tax you pay. For example, suppose you’re single and it’s December 27^th. You’ve got a $1,000 profit in a mutual fund and you’re thinking of selling. Should you sell it now or wait till January first? Based on how much money you’ve made this year and the amount of deductions you expect to have (information instantly available from your personal finance software program) you determine that your taxable income this year is going to be $28,400. This is exactly where the 27% tax bracket begins, which means that if you add to your income by making an additional $1,000, you’re going to owe $270 in taxes on that $1,000. If, however, you expect that next year you’ll only make $25,000, you could sell the mutual fund after January 1^st and only pay an additional $150, since $1,000 on top of $25,000 still leaves you well within the 15% bracket. So waiting a few days will save you $120, not to mention postponing the tax bill for an entire year.

That’s one way that tax brackets can help you save tax dollars. Another is in an area we’ve already discussed: buying investments that offer tax-free income. Tax-free interest is obviously worth a lot more to someone in the 38.6% federal tax bracket than to someone in the 10% bracket. You can’t compare tax-free investments with their taxable cousins until you know what tax bracket you’re in.

I don’t know about you, but I’m now officially sick of talking tax brackets. It’s high time we talked timing.

Keep in mind that the vast majority of us are not only calendar year taxpayers, we’re also cash basis taxpayers. That means that income becomes taxable when you receive it and allowable expenses become deductions when you pay them. As you’ll soon see, this is a key ingredient when it comes to reducing income, increasing deductions and shrinking tax bills.

Let’s focus on reducing taxable income first, since that’s the factor that presents the fewest options and therefore takes the least effort to understand.

If you’re an employee, you don’t have to spend a lot of time on your employment income, because you have virtually no control over when you receive it. If your employer writes you a check on December 30^th, it’s still reportable income for that year, even if you wait till January 1^st to cash the check. While you may not have actually received your cash until the next year, it was theoretically receivable in the current year, so not cashing checks won’t reduce your taxable income. But suppose you have a year-end bonus coming to you? If you can persuade your boss to cut that check after January 1^st, you will have effectively postponed the taxes due on that income for an entire year. The only problem with this approach is that convincing your boss to delay a check won’t be easy, since your taxable income is your company’s deductible expense. So if your company is also on a calendar tax year, postponing your income means postponing their write-off. An idea they probably won’t squeal with delight over.

Those of us who are self-employed often have more flexibility when it comes to the timing of our income (which, by the way, is one of many good reasons to be self-employed). If you’re a consultant, you can choose to send the invoice for work you did on December 30^th out on January 1^st. Even if your customer pays you instantly, (as if, right?) you’ve still moved that income to the next tax year. Congratulations: you’re an income-shifting tax planner!

While your pay is most likely your largest source of income, it’s probably not your only source. You could be getting gifts, borrowing money, collecting interest, selling stuff, winning money from gambling or contests, getting alimony, receiving child support, collecting Social Security (or other retirement income) or getting rent checks from real estate. How does each of these sources of cash affect your tax picture?