Last-Minute Tax Breaks for Small Businesses in 2023
We’re in the home stretch. The final mile. The late innings. Whatever you want to call it, there’s not much of 2023 left. But that’s OK. Even if you’ve only now realized you want to make some tax-smart moves, you can, thanks to a few last-minute tax breaks available to small businesses of every stripe.
To be very clear, we’d suggest not waiting until the last minute. The most effective tax strategies are employed across the whole year. It’s just plain difficult to maximize (or even qualify for) tax credits and deductions without a full 12-month window to work with.
At the same time, we say “better late than never!” A few last-minute tax breaks can help you wrangle some savings out of the final two months of the year.
We generally recommend that businesses work with a tax specialist when targeting certain tax breaks. A tax professional is going to be well-acquainted with all the ways your business can lower its tax obligations. They’ll also be familiar with the specifics, such as thresholds you’ll need to meet to qualify for those tax breaks so the IRS doesn’t come calling.
But for now, if you’re looking for ways to save on your 2023 taxes, read on as we highlight a few strategies.
7 Last-Minute Tax Breaks
Fund Your Retirement
One of the easiest last-minute tax breaks is also one of the most beneficial to you personally, and that is to ramp up your contributions to a 401(k) or other retirement account. You can contribute to your 401(k) up until Dec. 31, 2023, and still have the contribution qualify for deduction on your 2023 taxes.
If you have an IRA, you can contribute as late as April 15, 2024, and be able to deduct it on your 2023 taxes. Same goes for SEP IRAs. SIMPLE IRA salary reduction contributions must be deposited within 30 days of the end of the tax year. (So, if the end of your business’s tax year is Dec. 31, 2023, you’d have to deposit your salary reduction contribution by Jan. 30, 2024.)
Learn Something
Another way you can invest is in yourself. Certain educational expenses — courses, books, webinars, trade publication subscriptions, and more — are fully deductible under specific circumstances. Namely, according to the IRS: “To be deductible, your expenses must be for education that (1) maintains or improves skills needed in your present work or (2) your employer or the law requires to keep your present salary, status or job.”
Slow-Walk Billing
If your business’s financial year is the same as the calendar year, and you can afford a slowdown in cash flow, consider pulling the brakes on billing customers temporarily. That’s because if your customers don’t pay you until 2024, then it doesn’t count as income in 2023, and thus you don’t have to pay taxes on it until next year.
Charge It
If you’re a Schedule C taxpayer (sole proprietor or single-member LLC) or you’re a corporation with a corporate credit card, consider making any necessary late-year purchases with your credit card. That’s because you deduct anything you spend on the credit card the moment you make the charge. (Note, if you have a corporation but a personal credit card, you must make the charge and be reimbursed by the end of the year to deduct those expenses.)
Give a Little
Just like many individuals use charitable contributions as last-minute tax breaks, so too can small businesses. Where you claim those deductions depends on your business structure. If you have a corporation, charitable donations are claimed on corporate tax returns. But they go on your personal tax returns if your business is an LLC, sole proprietorship or partnership.
Build Your Business
Need a couple new desks and chairs? A better computer? Maybe you even need a vehicle to keep your company going. You can deduct 100% of the cost of these and any other qualified section 179 expenses in the very first year those assets are placed into service. Also covered are improvements to a building’s exterior.
Prepay Expenses
This last-minute tax break is the ultimate example of having to spend money to save money. The “12-month rule” is a safe harbor of sorts. It allows you to pay for something this year that will go in effect next year, and deduct it this year, as long as those benefits don’t extend beyond the earlier of the following: “12 months after the right or benefit begins, or the end of the tax year after the tax year in which payment is made.”
So, let’s say you pay $10,000 on Nov. 30, 2023, for an insurance policy that goes from Dec. 1, 2023-Nov. 30, 2024. That full $10,000 is deductible in 2023.
The Best Way to Save on Your Taxes
You could put together a tax-savings strategy on your own. But it’s a complicated and time-consuming task that, if done wrong, could get you in trouble with the IRS. We recommend having a tax pro in your corner instead.
McManamon & Co. provides creative, innovative and proactive tax advice that keeps small and midsize businesses on Uncle Sam’s good side. Reach out to us at 440.892.8900 or contact us online today.
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