Tax deductions to consider at year-end
Paying less in taxes is beneficial for business across the board. When you utilize the right strategies your business will realize cash by paying less in taxes.
Here are some strategies to implement before the new year:
Use the IRS Safe Harbor to Prepay Expenses: What is a safe harbor rule? It is a regulation that allows cash-basis taxpayers to prepay and deduct certain expenses up to 12 months in advance. Lease payments on business vehicles or machinery, business space rent payments, and business and malpractice insurance premiums are all qualifying expenses.
Cease billing until January 1, 2022: Until billed, clients typically don’t pay their balance. By delaying billing until the new year, taxes owed on December 2021 income is moved into 2022. This is a proven and easy-to-execute strategy to reduce the current years’ taxable income.
Use bonus depreciation: Buying office equipment or machinery, and software, and placing it in use before the end of the year take advantage of the current 100% bonus depreciate along with Section 179 expensing increases. More specifically, qualifying bonus depreciation and Section 179 purchases include computers, desks, chairs, and other office furniture, machinery and equipment, and certain vehicles.
Use company credit cards: Sole proprietors and LLCs filing Schedule C as a business should consider using credit cards for purchases during this next month for office supplies and other necessities. The date of charge for these purchases is the date of deduction for the corporation.
Take the deductions: There is a tax loss for the year when income is less than deductions for businesses. This is called a net operating loss (NOL) and this deduction can be up to 80% of the excess. Early-stage businesses could very possibly have a NOL even while growing. The takeaway? Document deductions and always claim them.