Use These Year-End Business Tax Deductions to Lower Your Tax Bill

Are you looking to turn the tables and have the IRS owe you money? While getting a check directly from the IRS might be a rarity, there are legitimate strategies that can put cash back in your pocket by reducing your tax liability. In this article, we’ll explore five powerful business tax deduction strategies that are not only effective but also easy to grasp and implement before the year-end of 2023.

Prepay Expenses Using the IRS Safe Harbor:
Gratitude is due to the IRS for its tax-deduction safe harbors. By leveraging the safe-harbor rule, cash-basis taxpayers can prepay and deduct qualifying expenses up to 12 months in advance without IRS challenge. This strategy encompasses various expenses such as lease payments on business vehicles, rent for offices and machinery, and business insurance premiums. However, it’s crucial to note that prepayments for 2023 cannot extend into 2025.

Delay Billing Customers, Clients, and Patients:
A time-tested approach to trimming your taxable income is to postpone billing your customers, clients, and patients until after December 31, 2023. This particularly applies to businesses operating on a cash basis. By holding off on billing, you effectively defer income recognition, providing a solid tax-planning strategy.

Invest in Office Equipment:
Consider making qualifying Section 179 and bonus depreciation purchases for office equipment. This includes new and used personal property like machinery, computers, desks, and furniture. Section 179 allows a 100% deduction, while bonus depreciation offers an 80% deduction, along with a 5 to 20% MACRS depreciation deduction. Keep in mind that increased expenses may impact your Section 199A deduction.

Strategic Use of Credit Cards:
Optimize your credit card usage by ensuring that the day you charge a purchase is the day you deduct the expense. For single-member LLCs or sole proprietors, this applies to both business and personal credit cards. If your business operates as a corporation, reimbursement for personal credit card charges must occur before midnight on December 31 to realize the tax deduction.

Manage Your Qualified Improvement Property (QIP):
QIP, applied to non-residential real property improvements, presents an opportunity for immediate deduction using Section 179 expensing and 80% bonus and MACRS depreciation. To qualify for the deduction in 2023, ensure that the QIP is placed in service on or before December 31, 2023.

Don’t miss out on these opportunities to optimize your financial standing before the year comes to a close.