Here are a few last minute business tax deduction strategies you can easily understand and implement before the end of 2023. While simple, these really are some valuable ways to make an impact on your current year taxes.
1. Prepay Expenses Using the IRS Safe Harbor
You just have to thank the IRS for its tax-deduction safe harbors.
IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.
For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.
Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Friday, December 29, 2023, you mail a rent check for $36,000 to cover all of your 2024 rent. Your landlord does not receive the payment in the mail until Tuesday, January 2, 2024. Here are the results:
You deduct $36,000 this year (2023—the year you paid the money).
The landlord reports $36,000 as rental income in 2024 (the year he received the money).
You get what you want—the deduction this year.
The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.
2. Buy Office Equipment
Increased limits on Section 179 expensing now enable 100 percent write-offs on most equipment and machinery, whereas bonus depreciation enables 80 percent write-offs. Either way, when you buy your equipment or machinery and place it in service before December 31, you can get a big write-off this year.
Qualifying Section 179 and bonus depreciation purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).
3. Use Your Credit Cards
The day you charge a purchase to your business credit card is the day you deduct the expense. Consider using your credit card for last-minute purchases of office supplies and other business necessities.
4. Delay Income
For cash basis taxpayers your income is included as taxable when it is received. Received means when it hits your mailbox (even if you don't check it). The best way to delay income is to put off billing a bit longer than normal. Of course, weigh this with your business cash flow need.
While simple, the acceleration of expenses and delay of income can move the needle on your current tax bill. Consider these options as you wind up 2023.
Questions?
We hope you find the ideas above valuable. If you would like to discuss these further, please contact TrueBlaze Advisors so we can help.