2023 Last-Minute Year-End General Business Income Tax Deductions

November 2023

This article aims to get the IRS to owe you money. Of course, the IRS will not likely cut you a check for this money—although in the right circumstances, that will happen. But in most cases, you’ll probably realize the cash when you pay less in taxes. This article gives you six powerful business tax deduction strategies you can easily understand and implement before the end of 2023.

1. Prepay Expenses Using the IRS Safe Harbor

You have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.1

Under this safe harbor, your 2023 prepayments cannot go into 2025. You can prepay only 12 months of qualifying expenses under the safe-harbor rule. For a cash-basis taxpayer, qualifying expenses include (among others) lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example: You pay $3,000 monthly rent and would like a $36,000 deduction this year. On Friday, December 29, 2023, you mail a rent check for $36,000 to cover all of your 2024 rent. Your landlord receives the payment in the mail on Tuesday, January 2, 2024. Here are the results:

You deduct $36,000 this year (2023—the year you paid the money).

The landlord reports $36,000 as rental income in 2024 (the year he received the money). 

You get what you want—the deduction this year. The landlord gets what he wants and likely more—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.

Don’t surprise your landlord. If he receives the $36,000 of rent paid in advance in 2023, he will have to pay taxes on the rent money in 2023. So, before sending a big rent check, make sure your landlord understands the strategy. Otherwise, your landlord might not deposit the rent check (thinking your payment was a mistake). Instead, the check might be returned to you, which will put a crimp in the strategy because you operate on a cash basis.

Remember, the burden of proof is on you. How do you prove that you mailed the check by December 31? The answer is to send the check using a U.S. Postal Service (USPS) tracking delivery method, such as priority mail with tracking and possibly signature required. Or even better, use one of the old standards the IRS must abide by, such as certified or registered mail. With these mailings, you have proof of the date you mailed the rent check. You also have evidence of the date the landlord received the check. If you use USPS online tracking, print the delivery and receipt tracking results for your tax records. That tracking information disappears from the postal service records long before you need it for the IRS.

2. Stop Billing Customers, Clients, and Patients

Here is one rock-solid, time-tested, straightforward strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2023. (This strategy only works if you or your corporation is on the cash basis and operates on the calendar year.) Customers, clients, patients, and insurance companies generally don’t pay until billed. Not billing customers and patients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example: Jake, a dentist, usually bills his patients and the insurance companies at the end of each week. This year, however, he sends no bills in December. Instead, he gathers and mails those bills the first week of January. Jake just postponed paying taxes on his December 2023 income by moving that income to 2024.

3. Buy Office Equipment

Qualifying Section 179 and bonus depreciation purchases include new and used personal property such as(among other types) machinery, equipment, computers, desks, furniture, and chairs (and certain qualifying vehicles). You can likely use Section 179 to deduct 100 percent of the machinery, equipment, computers, desks, furniture, and chairs cost.2 Alternatively, bonus depreciation would give you an 80 percent deduction3 plus a 5 to 20 percent MACRS depreciation deduction.

4. Use Your Credit Cards Correctly

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense.4 Therefore, as a Schedule C taxpayer, use your credit cards for last-minute purchases of office supplies and other business necessities.

If you operate your business as a corporation, and the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.5 If you operate your business as a corporation and are the personal owner of the credit card, the corporation must reimburse you by December 31 if you want the corporation to realize the tax deduction in that year. 

5. Don’t Assume You Are Taking Too Many Deductions

Always claim all your rightful deductions and maintain proper documentation. Far too many business owners, especially new owners, don’t claim all their deductions when those deductions would produce a tax loss. If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL.6

If you are starting a business, or with all that’s happened this year, you might have an NOL that can be carried forward to future years under the right tax circumstances.

6. Deal with Your Qualified Improvement Property (QIP)

QIP is any improvement you make to the interior portion of a building you own that is non-residential real property (think office buildings, retail stores, and shopping centers) if you place the improvement in service after the date the building was first placed in service.7 

The big deal with QIP is that it’s not considered real property that you depreciate over 39 years. QIP is 15-year property eligible for immediate deduction using Section 179 expensing, and 80 percent bonus, and MACRS depreciation. To get the QIP deduction in 2023, you must place the QIP in service on or before December 31, 2023.

Footnotes

  1. Reg. Section 1.263(a)-4(f) ↩︎
  2. IRC Section 179(b)(1) ↩︎
  3. IRC Section 168(k) ↩︎
  4. Rev. Rul. 78-38 ↩︎
  5. Ibid ↩︎
  6. IRC Section 172(d) ↩︎
  7. IRC Section 168(e)(6)(A) ↩︎

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