2023 Last-Minute Year-End General Business Income Tax Deductions

Act now and save on business income tax using these simple strategies.

1. Prepay expenses using the IRS Safe Harbor

The safe harbor rule allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS. According to the safe harbor rule, your 2023 payments cannot be moved into 2025. It is obvious that you prepay only 12 months of qualifying expenses per the rule. Cash-basis taxpayers eligible for the expenses may include business vehicle lease payments, office rental and machinery, and business and malpractice insurance premiums.

Under the tax rules, you should not include the December 31 payment on the Form 1099 submitted to the landlord. This would be an incorrect reporting and should be avoided.

2. Stop billing customers, clients, and patients

Try this strategy to reduce your taxable income this year, stop billing customers, clients, and patients until after December 31, 2023;assuming you or your corporation is on a cash basis and operates on the calendar year. Until they are billed, customers, clients, patients, and insurance companies do not pay. This is a successful tax planning strategy used by business owners for years.

3. Buy office equipment

Qualifying Section 179 and bonus depreciation purchases include new and used personal property like machinery, computers, desks, equipment, furniture, and chairs. You can use Section 179 to deduct 100 percent of the machinery cost, furniture, computers, and equipment. The bonus depreciation gives you an 80 percent deduction plus a 5 to 20 percent MACRS depreciation deduction. The increased expenses will reduce your deductions if you qualify for Section 199A deduction.

4. Use your credit cards correctly

If you are either a single-member LLC or sole proprietor filing Schedule C, remember that the day you charge a purchase to your business or personal credit card, you should deduct the expenses the same day. A Schedule C taxpayer should opt to use their card cards for last-minute purchases of office supplies and other business essentials. If you operate your business as a corporation and if there is a credit card in the corporate name, then you can apply this rule. The date of charge is the date of deduction for the corporation. If your business is a corporation and you are the personal owner of the credit card, then the corporation must reimburse the expenses for the corporation to realize the tax deductions, which happens on the date of reimbursement. So, the message is to submit your expense report and make your corporation make its reimbursements before midnight on December 31.

5. Don’t assume you are taking too many deductions

Always document your deductions and claim all your rightful deductions. New business owners especially do not claim all their deductions when those deductions would produce a tax loss. If your business deductions are more than 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 starting your business, there is a possibility you could have an NOL, with all that’s happened this year. NOLs can turn into future cash infusions for your business because you carry 2023 NOLs forward to future years.

6. Deal with your Qualified Improvement Property (QIP)

As the name suggests, any improvement made to the interior portion of a non-residential property like an office building, shopping centre, or retail store after the date the building was first placed in service. QIP, is not considered real property depreciating over 39 years. QIP is a 15-year property, eligible for immediate deduction under Section 179 expensing and 80 percent bonus and MACRS depreciation. You become eligible for QIP deduction in 2023, if you place the QIP in service on or before December 31, 2023.

Takeaways

Business deductions are a boon; the more you claim, the less you pay in regular tax. If you are self-employed, the less you pay in self-employment taxes.