This guide will help you legally reduce your tax liability and, in some cases, even get the IRS to owe you money. While a direct payment from the IRS is unlikely, you can realize significant savings by lowering your taxable income.
Below are six actionable business tax deduction strategies you can implement before the end of 2024.
1. Prepay Expenses with the IRS Safe Harbor
The IRS safe-harbor rule allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance. These prepayments can’t extend beyond 2025 for deductions taken in 2024.
Qualifying expenses include lease payments, rent, and insurance premiums.
Example:
- You pay $3,000 monthly rent and want to deduct $36,000 this year.
- On December 31, 2024, you mail a $36,000 check covering all 2025 rent.
- The IRS allows you to deduct $36,000 in 2024.
Important Tips:
- Confirm your landlord’s accounting method and willingness to accept advance payments.
- Use USPS certified or registered mail to document the mailing date for proof if audited.
- Do not include prepayments on Form 1099 issued to the landlord.
2. Delay Billing Customers or Clients
If your business operates on a cash basis, defer billing clients until after December 31, 2024, to postpone income to 2025.
Example:
A dentist who normally bills weekly delays all December billing until January. This strategy defers taxable income for the year.
3. Invest in Office Equipment
Section 179 and bonus depreciation allow significant deductions for purchasing new or used machinery, furniture, computers, and other equipment.
Deduction Options for 2024:
- Section 179 Expensing: Deduct 100% of the cost.
- Bonus Depreciation: Deduct 60%, plus 5–20% using MACRS depreciation.
Planning Note: Be mindful that increasing deductions may reduce your Section 199A deduction if applicable.
4. Leverage Credit Card Purchases
For sole proprietors and single-member LLCs, expenses charged to a credit card are deductible on the date of the charge.
Corporate Credit Card Use:
- If the corporation owns the card, the deduction applies immediately.
- For personal cards, the corporation must reimburse you by December 31, 2024, to claim the deduction.
5. Claim All Legitimate Deductions
Never hesitate to document and claim all qualifying deductions, even if they create a net operating loss (NOL).
Why This Matters:
- NOLs can be carried forward to offset future taxable income, potentially resulting in tax refunds.
- Claiming all deductions ensures you don’t overpay taxes unnecessarily.
6. Capitalize on Qualified Improvement Property (QIP)
QIP refers to improvements to the interior of non-residential buildings. These improvements are classified as 15-year property, making them eligible for:
- Section 179 Expensing: Immediate deduction.
- Bonus Depreciation: 60% deduction.
- MACRS Depreciation: Spread remaining cost over 15 years.
Deadline: Place QIP in service by December 31, 2024, to claim deductions this year.
Recap of Strategies:
- Prepay Expenses: Deduct up to 12 months of qualifying costs.
- Delay Billing: Postpone taxable income until 2025.
- Buy Equipment: Use Section 179 and bonus depreciation to deduct costs.
- Use Credit Cards: Optimize deductions based on charge dates.
- Claim Every Deduction: Document all eligible expenses to maximize savings.
- Utilize QIP: Deduct improvements to non-residential property.
By implementing these strategies, you can significantly reduce your tax liability for 2024 and set yourself up for financial success in the coming years. If you have any questions, please reach out to us at [email protected]. We’d love to help!