Last Minute Tax Deductions

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What would it be like to have the IRS owe you money?

Great, right?

While it seems too good to be true, there are ways to lower your tax liabilities so you pay the IRS less money. Here are the top ways to make it happen.

Use the IRS Safe Harbor Rule to Prepay Taxes

If you have extra money you want to use this year and want an extra tax write-off, consider prepaying certain expenses. You can prepay up to 12 months of rent (lease payments) on your building, the lease on your business automobile, or your business insurance premiums.

This means by December 31, 2021, you can pay up to 12 months of any of these costs, write them off for this year and the landlord or vendor accepting the payment can claim the income in 2022 (if you mail the payment late enough so the landlord or vendor doesn’t physically receive it until after the new year).

Buy New Equipment

Buy new or used equipment by December 31, 2021, and you can deduct the entire cost of the item on this year’s taxes thanks to the bonus deprecation at 100%. You must place the equipment in service this year to get the deduction, so don’t delay!

The deduction applies to equipment or machinery as well as office equipment like computers, desk, chairs, or other vital furniture for your business’s operation.

Use your Credit Cards

Your credit cards are a valuable tool if you run a Schedule C business. The day you charge business purchases is the day you can write them off, not the day you pay the card off. If you charge a large amount of business purchases on December 31, 2021, you can write of the expenses on your 2021 taxes.

The same is true for corporations, however, you must use the corporate card, not your personal credit card. If you charge the items on your personal credit card, the corporation must reimburse you the funds by December 31, 2021, to claim the expenses this year.

Delay Customer Billing

If you want to limit your income for the year, wait until January 1, 2022, to bill your customers. You can delay any billings from December, sending them as soon as January 1st to limit the income for this year and postponing it to next year.  Your business must operate on a cash-basis for this method to work.

Take all Deductions

Don’t assume you take too many deductions, ever. If you have more expenses than income, then you have a loss and that’s okay (it’s just on paper). The IRS calls it a net operating loss and it’s common for business whether start-ups or established business.

Just make sure your expenses are legit and you’re on your way to paying less taxes. You can carry your loss forward, but it can only offset up to 80% of your taxable income in a year.

Take the Qualified Improvement Property Deduction

If you make any improvements to your office, building, or store, you can take 100% of the deduction this year as long as you make the improvements and put them into service by December 31, 2021.

Don’t pay the IRS more than you have to this year. Let’s talk and see how we can lower your tax liability in these last few days of 2021. Even one or two small changes can have a great impact on your tax liabilities. Feel free to call us at 714-383-2307.