Here are seven strategic approaches to business tax deductions that are both powerful and accessible, curated for consideration before the close of the year 2023:
- Prepay Expenses Using the IRS Safe Harbor: The IRS offers a provision allowing businesses on a cash basis to prepay and deduct qualifying expenses for up to 12 months in advance. This means that payments for business leases, office rent, and insurance premiums can be prepaid and deducted in the current tax year, as long as they do not extend beyond the next 12 months.
- Cease Billing to Reduce Taxable Income: A simple yet effective method to decrease taxable income is to stop invoicing your customers or clients until after December 31. By doing so, you defer the income to the next year, potentially lowering your tax burden for the current year.
- Invest in Office Equipment: With the enhanced limits on Section 179 expensing and bonus depreciation, businesses can now fully write off purchases like equipment and furniture within the same year of purchase.
- Utilize Credit Cards for Business Expenses: For single-member LLCs or sole proprietors, the date you charge an expense to your credit card is the date you can deduct it. For corporations, the same applies as long as the card is in the company’s name.
- Don’t Shy Away from Deductions: Even if your business deductions result in a net operating loss (NOL), it’s important to claim them. While you can no longer carry back NOLs for immediate refunds, they can be carried forward to offset future taxable income.
- Address Qualified Improvement Property (QIP): Improvements made to the interior of non-residential property can be expensed over 15 years and are eligible for immediate deduction and depreciation, provided they are placed in service by the end of the year.
- Consider Vehicle Purchases: Acquiring a new business vehicle before the year’s end can yield significant deductions. Eligible vehicles, especially heavier SUVs, trucks, and electric vehicles, can provide substantial tax benefits through Section 179 expensing, bonus depreciation, and more.
The aforementioned strategies are intended to enhance your financial acumen and promote tax efficiency for your enterprise. We encourage you to engage with us for personalized guidance and to maximize the benefits of these opportunities. Should you have any inquiries or require assistance in navigating these deductions, please do not hesitate to reach out to our dedicated team. We are committed to fostering the fiscal growth and legal fortitude of your business.