As the year-end approaches, it's the perfect time for business owners to optimize their tax savings and potentially get money back from the IRS. While the IRS might not cut you a check directly, following these strategic steps can significantly reduce your taxable income, putting more cash in your pocket. Here are six powerful and easy-to-implement business tax deduction strategies to consider before the end of 2023.
1. Prepay Expenses Using IRS Safe Harbor
Take advantage of the IRS safe-harbor rule, allowing cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without IRS challenge. Qualifying expenses include lease payments, rent, and insurance premiums. Make sure to mail your prepayment checks using USPS tracking methods for proof and keep your landlord informed about this strategy.
2. Stop Billing Customers, Clients, and Patients
Delay billing your customers, clients, and patients until after December 31, 2023, to shift the income to 2024. This simple strategy effectively reduces your taxable income for the current year.
3. Buy Office Equipment for Tax Deductions
Consider investing in office equipment, machinery, computers, or furniture to qualify for Section 179 and bonus depreciation deductions. Section 179 allows you to deduct 100% of the cost, while bonus depreciation offers an 80% deduction plus additional depreciation benefits.
4. Use Your Credit Cards Wisely for Tax Benefits
For single-member LLCs and sole proprietors, the date you charge a purchase to your credit card is the date of deduction. If you operate as a corporation, ensure that expenses charged on personal credit cards are reimbursed by the corporation before December 31, 2023, to claim the deduction.
5. Don’t Miss Any Deductions for Tax Savings
Document and claim all your legitimate deductions. Don’t worry about taking too many deductions; legitimate deductions are valuable and essential. If your deductions exceed your income, it creates a net operating loss (NOL), which can be carried forward to future years, providing a cash infusion for your business.
6. Deal with Your Qualified Improvement Property (QIP) for Tax Advantages
If you own non-residential real property, consider making improvements within the interior portion of the building. QIP qualifies for immediate deduction using Section 179 expensing and 80% bonus depreciation. Ensure the QIP is placed in service on or before December 31, 2023, to claim the deduction for this year.
Remember, business deductions are crucial for reducing your tax liability. By following these strategies, you can optimize your deductions, pay less in taxes, and potentially receive money back from the IRS. Act now to implement these last-minute tax-saving techniques before the year-end to secure a brighter financial future for your business. For more information on business tax deductions and expert tax advice, contact us today.
Disclaimer: Laws and regulations are subject to change, and readers are advised to consult EPL advisors for personalized advice and compliance with specific state requirements. This information is not specific advice and is meant for general education.
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