Take Advantage of Last Minute Tax Deductions for your Business
In the midst of holiday parties and shopping for gifts, don’t forget to consider these strategies to cut the 2023 tax liability for your business. Here are a few ways you can save on next year's tax bill.
1. Accelerate your Deductions & Defer Income
If your business operates on a cash basis, you can significantly affect your amount of taxable income by accelerating your deductions for 2023 and deferring income into 2024.
You can place recurring expenses normally paid early in the year on your credit card before January 1 — that way, you can claim the deduction for 2023 even though you don’t pay the credit card bill until 2024.
You also can prepay some expenses, such as rent or insurance and claim them in 2023.
Wait until close to year-end to send out invoices to customers with reliable payment histories, or hold off on the delivery of goods and services until next year.
2. Buy Assets
If you’re thinking about purchasing new or used equipment, machinery or office equipment in the new year, it might be time to act now.
Buy the assets and place them in service by December 31. By doing so, you can deduct 80% of the cost as bonus depreciation in 2023. Contact us for details on the 80% bonus depreciation break and exactly what types of assets qualify. Bonus depreciation is also available for certain building improvements.
The first-year Section 179 depreciation deduction will allow many small and medium-sized businesses to write off the entire cost of their 2023 asset additions on this year’s federal and potentially state income tax return.
The maximum Sec. 179 deduction is $1.16 million and a phaseout rule kicks in if you put more than $2.89 million of qualifying assets into service within the year.
3. Purchase a Heavy Vehicle
The 80% bonus depreciation deduction may have a major tax-saving impact on first-year depreciation deductions for new or used heavy vehicles used over 50% for business.
Heavy SUVs, pickups and vans are treated for federal income tax purposes as transportation equipment, meaning they qualify for 100% bonus depreciation.
100% bonus depreciation is available when the SUV, pickup or van has a manufacturer’s gross vehicle weight rating above 6,000 pounds. You can verify a vehicle’s weight by looking at the manufacturer’s label, which is usually found on the inside edge of the driver’s side door.
Keep in mind that some of these holiday tax tips can adversely impact other aspects of your tax liability, such as the qualified business income deduction. Contact your VAAS Pro Consultant to make the most of your tax planning opportunities.