Top Tips for Year-End Tax Saving Deductions
Every business wants to make money, but nobody likes writing large checks to the IRS. However, if you’re expecting a significant income before year end, you may want to consider creating more year-end tax saving deductions. Here are some strategies you can use:
1. Prepay for recurring expenses.
Cash basis taxpayers can prepay and deduct qualifying expense up to 12 months in advance without challenge, adjustment or change by the IRS. For example, if you pay rent each month to your landlord, you can prepay next year’s full 12 months rent in this year (and have it qualify as a year-end tax saving deduction). The landlord will want to receive the payment as income for next year, so make sure you plan the dates accordingly. Also, it’s highly advisable to do your prepaid rent via registered mail, so you have proof of the expense in this tax year.
2. Stop billing customers and patients
Customers & patients pay their bill after receiving an invoice. By not charging your customers now, you can delay income. Therefore, it will go into next year’s tax obligation.
3. Buy some new office equipment
This is a simple strategy that creates year-end tax saving deductions and improves your office space. There’s an overall limit of $500,000 for office equipment spending, but you can purchase new and used equipment, desks, chairs, and computers to increase your deductions for the current tax year.
4. Make credit card reimbursements before Dec 31
The day you charge a purchase to your business or personal credit card is the day the expense is deductible. Therefore, any items you purchase for your business using your personal money needs to be reimbursed to you. Opt to do your reimbursement report & have your corporation make its reimbursement to you before midnight on Dec 31.
5. Claim all your legitimate deductions
Don’t think you have too many. Document your receipts and invoices as backup proof, but don’t be afraid that too many deductions will cause the IRS to “red flag” you. So many business owners neglect to keep track of their receipts and lose thousands of dollars in deductions each year.
At Paragon, we are experts in small business accounting and tax. Moreover, we know the tax code. We are here to help you get full benefits from the tax laws. Our clients of many years see the value we bring to their accounting & tax strategies year after year. Join us for a year-end tax prep meeting so we can review YOUR numbers and make your next tax season easier.