It's the end of 2022 and there have been some new things that have been flying around about taxes this year. From the new reporting requirements for returns to new credits and new things around energy being done.
You can't navigate this all on your own because, frankly, we can't either. It's a frenzy most of the time, especially when we're cycling up to an election year. And this is the very reason you don't want to wait until December 31.
There are six powerful business tax deduction strategies you need to think about. Talk to your accountant or tax pro about what makes sense for you because there's nothing more personal than tax. Every situation is different, so make sure to understand how it relates to you and your tax situation.
Pre-paying your expenses
The first strategy here is to prepay your expenses as much as possible. That's kind of a straightforward one, but don't get carried away because you can only prepay 12 months' worth of an expense.
Delaying billing your customers
The second strategy is to stop billing your customers. Which sounds really bizarre, but you're just delaying billing your customers. So if you have something due, especially at the end of December or the mid to end of December, just wait and bill them in January. The caveat would be that your customers might not want to withhold paying a bill because it's an expense they're not able to capture.
Buying office equipment to write it off through depreciation
The third strategy is to buy some office equipment. The caveat here is don't just buy office equipment to buy it; buy what you need. And go ahead and pay for it. Be sure that you buy it before the end of the year.
Don't buy what you don't need just to save on taxes. We always have to remind our readers and listeners of that.
Using credit cards correctly
The fourth strategy is to use your credit cards correctly. Now, what we mean by that is, you can actually pay for something on your credit card on the very last day of the year and get that deduction.
But you could miss it by a day if you don’t understand how credit cards work. So be careful because the date of the charge and the date of deduction could be different.
Dealing with qualified improvement property
Number five is to deal with your qualified improvement property. There are a lot of benefits for your qualified improvement property with the CARES Act.
What is a qualified improvement property? It's an improvement made by you to the interior portion of a building you own that is real property. It must specify that it's non-residential real property.
Deduction strategies for vehicle purchases to save on taxes
I am going to add this disclaimer because we're also going to talk about existing vehicles. There are some legitimate ways to do this through your business, but you have to have a legitimate reason to have a business vehicle. You have to be able to say that you use that vehicle at least 50% of the time for business.
You can buy a vehicle before the end of the year and get a pretty big write off and depreciation for your business. Make sure it's a business purpose vehicle, or at least over 50% business use.
You really do need an entity to do this, and you have to have an entity of some sort. Your entity status needs to be an LLC, an S Corp, or a C Corp. This is not for sole proprietors. The entity has to be the one to buy the vehicle.
Talk to your accountant about how you can legally implement this strategy for your business.
Last year-end retirement deductions
The big picture here is that you need to establish your retirement plan before 12/31. Depending on what your plan is, you may have already missed it. But for the most part, you have to have that retirement plan in place before 12/31 and you have to have all the funding done.
There are some caveats to that for some self-employed people, but a lot of it has to be funded.
You've got the employer part of the contribution, like putting the plan in place for your LLC or your S Corp. So, dealing with your reasonable comp and your wages to kind of add that, which adds expenses. And then you've got the employer piece, which is the matching contribution.
There's also the profit sharing contribution. As in many cases, if your business has cash flow, you can contribute up to 25% of your income or your wages, depending on how your business is structured, as a tax deductible retirement contribution, which helps lower the overall income of the business and your taxes.
I don't think retirement is something you should try to navigate on your own. I'm not a retirement expert, but I know enough. That's why we love the team at Guideline. They help navigate things for company retirement and stuff like that. They have clear deadlines, so things are going to be put in place and it integrates well with Gusto. So there are some really great tools that all play well together.
Medical plan strategies
As small business owners, especially as S Corp owners, if you make sure that you get those health insurance reimbursements recorded properly, or just the premium payments recorded properly, that's a good tax deduction.
And if you do provide health insurance for your employees, guess what? You get tax credits there. So don't miss the window when you do that, because that's really important when you set up that group plan and it includes your employees and you're contributing up to 50% of their premium. That's also a tax credit and a deduction.
Year-end strategies for marriage, kids, and family, and your investment portfolio
If you've got children, put them on your payroll. Give them something to do. It's good for them, it's good for you, and it's good for your business.
We did a wonderful episode about how to help your kids build wealth through your business and making contributions to their IRAs early. So there's definitely some stuff to get excited about.
If you want to learn more about last-minute deductions to consider, check out Episode 109: Year-End Tax 2022: Last-Minute Deductions To Consider Before 12/31.
