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End Of Year Tax Planning For Businesses

Christmas is coming! Right behind that is New Year. You still have time to do some planning on how to reduce your business-related taxable income for 2023.

So, what if you are staring down the barrel of a VERY successful tax year and you don’t expect it to repeat in 2024.

Most small businesses are taxed on a “Cash Basis” of accounting. That means, if you paid it before 12-31-23 ends, you get to deduct it in 2023. (If you deliver it to the US Mail, or pay UPS/FedEx to pick it up before 12-31-23 ends, it is considered as “paid.”) So, the following is for “Cash Basis” folks only. (Keep in mind, that the following is just moving stuff from one year to another. You can’t put off paying taxes forever, but delaying for a year might help.)

You can prepay qualified expenses up to 12 months in advance and get a deduction in the year you paid them. You could prepay a lot of expenses, like rent, utilities, insurance, accounting/bookkeeping fees, tax preparation fees, legal fees, dues, subscriptions, property taxes, janitorial fees, etc. General rule, it can not be a purchase of items that are not “placed in service” before the end of the year.

If you want to be nice to the vendors you are prepaying, deliver the prepayment via US Mail, UPS/FedEx, etc. on December 30, 2023. They won’t get the payment until early 2024, thus, they don’t have to pay tax on that income until 2024. How great is that? You get a deduction to reduce your tax in 2023, but the income side doesn’t have to pay tax until they file their 2024 tax return in 2025. You might even be able to negotiate a discount for prepaying that way.

Another idea is to purchase equipment and place it in service before the end of the year. Don’t purchase anything you didn’t plan on purchasing in the next 10 months anyway.

Besides writing checks, another option is to use credit cards to accomplish this. Basically, the IRS considers the date of the charge to your card as when you can deduct it. Warning. If you use your personal credit cards for your business, then you must reimburse yourself before 12-31-23 to get a deduction.

If you bill customers/clients/patients in order to get paid. Stop billing for the rest of this year and don’t send out bills until January 2, 2024. That will hurt your cash flow a bit, but when you get paid in 2024, you’ve effectively moved income you normally would have received in 2023 into 2024.

Have you heard? Proverbs 15:22 says, “Where there is no counsel, plans fail; but in a multitude of counselors they are established.”

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