Year End Business Tax deductions

The goal in business is to to get the IRS to owe you money. (I know the dream right!) That’s not to say they will be cutting you a check any time soon. The point really is to pay less taxes. Which in essence just keeps your money in your own pocket, instead of theirs.

Here are 6 business strategies that can be easily implemented before the end of the year.

1. Prepay Expenses Using the IRS Safe Harbor

You just have to thank the IRS for its tax-deduction safe harbors.

Safe Harbor: IRS regulations allow 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 (among others):

lease payments on business vehicles,
rent payments on offices and machinery,
business and malpractice insurance premiums.

2. Stop Billing Customers, Clients, and Patients

Stop billing your customers, clients, and patients until after December 31, 2021. This only works if you are on a cash basis and operate on the calendar year.

Customers, clients, patients, and insurance companies generally don’t pay until billed. Let’s face it, no one is going to pay you if the invoice doesn’t exist (at least, not yet!).

Not billing customers and patients is a time-tested tax-planning strategy that business owners have used successfully for years.

3. Buy Office Equipment

With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31 and get a deduction for 100 percent of the cost in 2021.

Qualifying bonus depreciation and Section 179 purchases include (among others) new and used personal property such as:

Machinery
Equipment
Computers
Desks
Furniture
Chairs
Certain qualifying vehicles

4. Use Your Credit Cards Correctly

Single-member LLC or Sole Proprietor: The day you charge a purchase to your business or personal credit card is the day you deduct the expense. Consider using your credit cards for last-minute purchases of office supplies and other business necessities.

Corporation: if the corporation has a credit card, the same rule applies: the date of charge is the date of deduction for the corporation.

If you operate your business as a corporation and you use your personal credit card, the corporation must reimburse you if you want the corporation to realize the tax deduction. That happens on the date of reimbursement.

Thus, submit your expense report and get you reimbursements before midnight on December 31.

5. Don’t Assume You Are Taking Too Many Deductions

You should never stop documenting your deductions, and always claim all your rightful deductions.

All deductions are valuable. Sometimes, business owners may not know what can be used as a business deduction. Shameless plus: We can help you with that!

If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL.

If you are just starting your business, or with all that’s happened this year, you could very possibly have an NOL. And the good news is that NOLs can turn into future cash infusions for your business, because you carry 2021 NOLs forward to future years.

6. Deal with Your Qualified Improvement Property (QIP)

In the CARES Act, Congress finally fixed the qualified improvement property (QIP) error that it made when enacting the Tax Cuts and Jobs Act (TCJA).

QIP is any improvement made by you to the interior portion of a building you own that is non-residential real property (think office buildings, retail stores, and shopping centers). If you place the improvement in service after the date you place the building in service.

QIP has restrictions based on depreciation, including years and section 179 expensing. To get the QIP deduction in 2021, you need to place the QIP in service on or before December 31, 2021.