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What if the IRS owed you money?

Wouldn’t it be nice if the IRS owed you money at the end of the year?

Well, that’s not likely, but with the right planning, you could keep more of your hard-earned money by paying less in taxes.

We’ll be posting tips for you throughout the end of the year. Putting these strategies into action may help cut your tax bill for 2021.

Tax-Saving Tip #1:  Prepay Expenses

Use the Safe-Harbor Tax Deduction

If you are a cash-basis business, you’re allowed to prepay and deduct qualifying expenses up to 12 months in advance through the safe-harbor rule.

Qualifying expenses include lease payments on business vehicles and machinery, office rent, and business or malpractice insurance premiums.

Think about it this way. If you pay $3,000 a month in rent and would like a $36,000 deduction this year, you can mail a rental check to cover all of 2022 on December 31, 2021. Your landlord will receive the payment in January.

Everybody’s happy. You’ll get a $36,000 write-off for 2021, and your landlord gets a nice check of payment in full, that he would claim in 2022 (which he would have claimed in that year, anyway). Your landlord will also avoid any collection issues. Just make sure your landlord receives the check after the new year so that he doesn’t have to pay taxes on it for 2021.

Tax-Saving Tip #2:  Don’t Bill in December

This is an easy one. Delay billing your clients until after December 31, 2021, assuming your business works on a cash basis and a calendar year.

Hold off billing your clients, patients, or customers until the first week of January 2022. They’ll enjoy not receiving a bill during the holiday season, and you will easily move all of that income into 2022. You’re Welcome.

Tax-Saving Tip #3:  Buy Office Equipment

Treat yourself to that new laptop or copy machine. With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, you have the ability to purchase business equipment or machinery, place it in service before December 31, and get a deduction for 100 percent of the cost in 2021.

New and used machinery, equipment, computers, furniture, and some vehicles qualify for this allowance.

Tax-Saving Tip #4:  Use Your Business Credit Card and Close Out Your Expense Report before Midnight

As a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities in order to get that deduction immediately.

The same rule applies for those operating their business as a corporation and has a credit card in the corporate name: the date of charge is the date of a deduction for the corporation.

However, if your business is a corporation and you are the personal owner of the credit card, the corporation must reimburse for the expense. Therefore, the deduction won’t be realized until the day of reimbursement. Be sure to submit your expense report and have your corporation make its reimbursements to you before midnight on December 31 in order to realize the deduction for 2021.

Tax-Saving Tip #5:  Don’t Assume You Are Taking Too Many Deductions

Stake a claim for every one of your business deductions. If they exceed your business income, you have a tax loss for the year. This is referred to as a “net operating loss,” or NOL, and it can be a good thing.

If you are just starting your business, you could very possibly have an NOL. You could have a loss year even with an ongoing, successful business.

Although we used to be able to carry NOLs back two years in order to get tax refunds from prior years, the Tax Cuts and Jobs Act eliminated this provision. Now, it’s important to know that you can carry your NOL forward, however, it can only offset up to 80 percent of your taxable income for any one year.

The lesson here is to document every deduction and be sure to claim all of your rightful deductions. If those deductions create a tax loss, it can save you money.

Tax-Saving Tip #6:  Deal with Your Qualified Improvement Property

In the CARES Act, Congress finally fixed the qualified improvement property (QIP) error that is made when enacting the TCJA.

QIP is any improvement made by the taxpayer to a non-residential building’s interior (think office buildings, retail stores, and shopping centers). The improvement must occur after you’ve placed the building in service.

QIP is not considered real property to be depreciated over 39 years. QIP is 15-year property, eligible for immediate deduction using either 100 percent bonus depreciation or Section 179 expensing. Remember, in order to get the QIP deduction in 2021, you will need to place that property in service on or before December 31, 2021.

Please note:  If you have QIP property on an already filed 2018 or 2019 return that has not been amended, it’s on that return as 39-year property. Make sure you change it back to a 15-year property. It will most likely add some cash to your bank account.

Tax Saving Tip #7:

Call me for details, at 201.787.6542, or for answers to any and all of your year-end tax questions.

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