December 21, 2016

2016 Last-Minute Year-End General Business Deductions

2016 Last-Minute Year-End General Business Deductions

As the end of the year approaches, it’s a good time to think of planning strategies that will help lower your taxes for 2016. My goal is for you to leverage your tax deductions and credits to the fullest extent.

I want to briefly discuss five different strategies that can be powerful tools in lowering your tax bill. And the really great part is that each of these strategies is easy to understand and implement.

  1. Prepay expenses.  
  2. Stop billing customers and patients.  
  3. Buy office equipment.  
  4. Use your credit cards.  
  5. Don’t assume you are taking too many deductions.

1. Prepay Expenses

The IRS allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance (through December 2017) without challenge, adjustment, or change by the IRS. For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

This is a great way to pump up your 2016 deductions with expenses you will eventually pay anyway.

2. Stop Billing Customers and Patients

An easy strategy for reducing your taxable income for this year is to stop billing your customers until after December 31, 2016. Customers, 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.

3. Buy Office Equipment

With Section 179 expensing, you can write off up to $500,000 of office equipment in 2016. Qualifying Section 179 purchases include new and used personal property such as equipment, computers, desks, chairs, and certain qualifying vehicles. To qualify for expensing, you need to both buy the items and put them in business service on or before midnight December 31, 2016.

4. Use Your Credit Cards

If you are a sole proprietor, the day you charge a purchase to your business or personal credit card is the day the expense is deductible. Therefore, as a proprietor, consider using your credit cards to buy office supplies and other business necessities.

If you operate your business as a corporation, and if 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.

But if you operate your business as a corporation and you are the personal owner of the credit card, the corporation must reimburse you if you want the corporation to realize the tax deduction, and that happens on the date of reimbursement. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.

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

Make sure you record all of your rightful deductions for 2016, because if your business deductions exceed your business income, you have a tax loss for the year. After a few modifications to the loss, tax law calls this a “net operating loss,” or an NOL.

The good news is that tax law allows you to carry back the NOL for two years and get instant refunds from taxes previously paid. If, after going back for two years, you still have unused losses, you can carry them forward for up to 20 years. In other words, you have a 22-year window during which you can realize the benefits of your deductions. So always document your expenses in order to get your rightful deductions.

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