This article’s goal is to make the IRS owe you money.
Although the IRS is unlikely to send you a check for this money (under the appropriate conditions, though, that will happen), you will realize the cash by paying less tax.
Before the end of 2021, you’ll learn how to take advantage of six effective company tax deduction techniques.
Safe Harbor Prepayment of Expenses
Tax-deduction safe harbors provided by the IRS are to be thanked.
Cash-basis taxpayers can prepay and deduct eligible costs up to a year in advance without being challenged, adjusted, or changed by the IRS under IRS regulations.
Your 2021 prepayments cannot be carried over into 2023 under this safe harbor.
The safe-harbor rule allows you to prepay just 12 months’ worth of eligible costs, so this makes sense. Lease payments on business cars, rent payments on-premises and machinery, and business and malpractice insurance premiums are all deductible costs for a cash-basis taxpayer.
This year, you get a deduction. There are no collection issues, and the rent is taxed when it’s expected to be taxed. The landlord receives what he’s looking for:
Make sure that you don’t surprise your landlord: if he had reached the $36,000 in rent payment in advance in 2021, he would have had to pay taxes on the rent money.
Make sure your landlord knows the approach before delivering a large rent payment. If he doesn’t deposit the rent check, he may return the check to you because he thinks your payment was a mistake. Because you operate on a monetary basis, this might put a dent in your approach.
Here’s a little-known tax rule: You don’t include the December 31 payment on the Form 1099 you provide the landlord. Many people are surprised to hear that. On the other hand, including the December 31 payment on the landlord’s 1099 would be an error.
Stop Billing Clients and Patients
Here is one rock-solid, time-tested, straightforward approach to lower your taxable revenue for this year: avoid invoicing your customers, clients, and patients until December 31, 2021.
Customers, clients, patients, and insurance companies often don’t pay until billed. Not charging customers and patients is a time-tested tax avoidance approach that company owners have employed effectively for years.
Invest in Office Supplies
Taking advantage of the 100% bonus depreciation deduction and the expanded Section 179 expensing limitations by December 31 will allow you to deduct 100% of the cost of your new equipment or machinery in 2021.
New and used personal property like machinery, computers, desks, furniture, and chairs are eligible for bonus depreciation and Section 179 deductions.
Observation. If you are eligible for the Section 199A deduction, your additional expenditures will reduce your deduction.
Be Smart With Your Debit and Credit Cards
The expenses can be deducted the day you charge them to your personal or company credit card if you are a single-member LLC or sole proprietor filing Schedule C for your firm. When purchasing last-minute office supplies and other requirements as a Schedule C taxpayer, you might think about using your credit card.
To the same extent, you are subject to the exact date-of-deduction requirements as if you were operating your firm as a corporation with a credit card in its name.
As long as the company owns the credit card used for business purposes, you must reimburse the corporation for the corporation to claim a tax deduction, which occurs on the date of reimbursement. To get reimbursed by your employer at the end of the year, submit your expense report and do it by midnight on December 31.
Be Mindful With Your Deductions
You should never stop documenting your deductions and claiming all of your legitimate deductions. Too many new and inexperienced business owners don’t claim all their deductions, even if those deductions would result in tax savings.
Assist With Your Qualified Improvement Property
It will not happen to you. Why? Because, as a subscriber, you’re aware that every deduction has value. That includes assumptions you didn’t use this year, which can result in a taxable loss for the year as well. Tax law refers to this as a “net operating loss” after a few changes to the loss.
The qualifying movement property blunder that Congress made in the Tax Cuts and Jobs Act was eventually remedied by the CARES Act. For tax purposes, QIP is defined as any modification you make to the interior section of a non-residential real-estate building that you own.
You can depreciate QIP over 39 years, but it’s not real property. Taxpayers can take an immediate deduction utilizing either 100 percent bonus depreciation or Section 170 expensing for QIP, a 15-year property. If you want to claim the QIP deduction in 2021, you must put the QIP into operation before December 31, 2021.
Notes for the future. QIP property that has previously been reported on a 2018 or 2019 tax return is listed as 39-year property on that return. That has to be fixed, and you’ll probably end up with a bit of extra money in your wallet as a result.
As a new entrepreneur or as a result of recent events, you may have a Non-Profit Organization. In addition, the good news is that your business can benefit from the carryover of 2021 NOLs to future years, resulting in future cash flow.
More Deductions The Better
Business deductions are supremely advantageous to maximize your profits; you should claim as many company expenses as possible. Your average taxes will be reduced by the number of business deductions that you claim.
Reduced taxation is undoubtedly beneficial.