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.
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.
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.
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.
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.
Please contact me to discuss in greater depth any of the strategies outlined above.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.