In the midst of holiday parties and shopping for gifts, don’t forget to consider steps to reduce your small business taxes. You still have time to take advantage of a few opportunities.
If you’re thinking about purchasing new or used equipment, machinery or office equipment in the new year, it might be time to act now. Buy the assets and place them in service by December 31, and you can deduct 80% of the cost as bonus depreciation in 2023. This is down from 100% for 2022 and it will drop to 60% for assets placed in service in 2024. Contact us for details on the 80% bonus depreciation break and exactly what types of assets qualify.
Bonus depreciation is also available for certain building improvements.
Fortunately, the first-year Section 179 depreciation deduction will allow many small and medium-sized businesses to write off the entire cost of some or all of their 2023 asset additions on this year’s federal income tax return. There may also be state tax benefits.
However, keep in mind there are limitations on the deduction. For tax years beginning in 2023, the maximum Sec. 179 deduction is $1.16 million and a phaseout rule kicks in if you put more than $2.89 million of qualifying assets into service in the year.
Write off heavy vehicles
The 80% bonus depreciation deduction may help reduce your small business taxes on first-year depreciation deductions for new or used heavy vehicles used over 50% for business. That’s because heavy SUVs, pickups and vans are treated for federal income tax purposes as transportation equipment. In turn, that means they qualify for 100% bonus depreciation.
Specifically, 100% bonus depreciation is available when the SUV, pickup or van has a manufacturer’s gross vehicle weight rating above 6,000 pounds. You can verify a vehicle’s weight by looking at the manufacturer’s label, which is usually found on the inside edge of the driver’s side door. If you’re considering buying an eligible vehicle, placing one in service before year end could deliver a significant write-off on this year’s return.
Time income and deductions
If your company is cash-basis, you can reduce your small business taxes by postponing income until 2024 and accelerating your deductions into 2023 (provided you anticipate paying the same or a lower tax in 2023).
For instance, even though you don’t pay the credit card payment until 2024, you can claim the deduction for 2023 if you charge recurring costs that are typically paid for early in the year on your credit card before January 1. In some cases, you can even pay for some costs in advance, such rent or insurance, and collect them in 2023, .
In terms of revenue, hold off on sending bills to clients that have a track record of timely payments until near year’s end. Businesses that operate on an accrual basis may use a similar strategy and postpone providing goods and services until the next year.
Account for All Possibilities to Reduce your Small Business Taxes
Keep in mind that some of these strategies to reduce your small business taxes may have a negative impact on other aspects of your tax liability, such as the qualified business income deduction. Make the most of your tax planning opportunities by contacting us.
© 2021. Updated November 2023.