The end of the year is quickly approaching and if your priority is to save on both business and personal income tax in April there are a few tax moves to consider before December 31st.
On the business side
- If you are on a cash-based accounting method, consider delaying sending invoices to your customers until January. When these invoices are paid in January you are effectively delaying your income tax on these until 2024. If you have receivables or invoices outstanding and aren’t hurting for cash flow, then collecting on them in January enables you to do the same thing.
- Consider stocking up on supplies/raw material before year end…if you know you will use them in 2023 then paying for them this year can help you expense these in 2022 and can significantly reduce your reported income. One of our clients in the printing/signage industry will purchase paper, ink, and other supplies in bulk in the final weeks. Even manufacturers that consistently use Steel/Aluminum can take advantage of the ability to expense these materials in 2022.
- Take advantage of the Section 179 tax write off for equipment. If you know you will need to upgrade equipment next year, or know you will need equipment in the spring, the Section 179 tax write off lets you expense 100% of the equipment cost in 2022. A $50,000 acquisition can save you between $10,000-$15000 in payable tax and you don’t need to pay cash to take advantage. Many of our clients are utilizing a 4 or 5 year lease term, deferring their payments until May, and are still able to achieve the tax write off.
On the personal side
- Sell any personal stocks that are showing a loss, you can always purchase them back 30 days later but claim the loss on your 2022 return.
- Contribute the maximum amount to your retirement funds. For example, if you are in the 30% tax bracket and contribute $6000 to an IRA you can save yourself $1800 in payable tax in April.
- Consider deferring your last paycheck/income until January.
- Make your January mortgage payment before the end of the year…this can help you get an extra mortgage interest deduction in 2022 since 13 payments were made vs 12.
Before taking any of these approaches, double check with your tax professional to make sure you are maximizing the tax write offs that are best for your business and personal income. We hope you have a prosperous finish to the year and happy holiday season.