As the year comes to a close I wanted to provide some powerful business tax deduction strategies you can easily implement before the end of 2022. Always check with your CPA or tax professional who can explain these deductions and help you review their impact on your business. I just enjoy helping my clients and friends take advantage of all of the deductions that the IRS allows. As I pointed out in my blog on maximizing vehicle tax deductions on average, we are using only 13% of the legal tax deductions or 23 of the 170 standard deductions! This ended up being too long for one post so we’ll do #1-5 this week and #6-10 next week.
#1: Open a Health Savings Account
If you qualify, your first retirement account should be a Health Savings Account (HSA). An HSA is a medical savings account designed for taxpayers with a high-deductible health plan to save for upcoming health care expenses. This account is known as a triple tax advantage as funds go in tax-free, can grow tax-free by investing the balance and be withdrawn tax-free at any time if used for qualifying medical expenses including deductibles, copays and coinsurance. Plus, your HSA balance, if not entirely used, will roll over from year to year.
Medical expenses include a broad category of health care expenses including vision and dental expenses, acupuncture, medical massage, over the counter medications, feminine products, and even service animal expenses. Here’s an extensive list from the IRS.
The limits of pre-tax funds contributed to an HSA for 2022 are $3,650 for a single person and $7,300 for a family, plus an additional $1,000 if you’re 55 or older. For more details on this see our 9/2/22 blog
#2: Max Out Your Retirement Account Contributions
Retirement funds provide one of the most productive tax deductions because you reduce your tax bill while building up for retirement. If you can afford it, max out your possible contributions to any retirement account. Retirement contribution is allowed until the April 18th filing deadline (not extension date).
Small business and self-employed retirement plans:
SEP IRA vs Solo 401(k)
With a solo 401(k), unlike with a SEP IRA, you can make pre-tax retirement contributions and you get the benefit of contributing as both the employee and the employer. Contributing as both the employee and employer allows you to contribute more to your retirement accounts compared to a SEP IRA. Additionally those over 50 can contribute an added $6,500 in 2022 ($7,500 in 2023) in catch-up funding, regardless if you are behind on your contributions.
The solo 401(k) must be set up before year end but you have until you file taxes to fund it. A SEP-IRA can be opened and funded up to the date you file your taxes.
#3: Prepay Expenses for 2023 Using the IRS Safe Harbor
IRS regulations contain a safe-harbor rule that allows cash basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance. Some qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.
Example. You pay $5,000 a month in rent and would like a $60,000 deduction this year. So on Friday, December 30, 2022, you mail a rent check for $60,000 to cover all of your 2023 rent. Your landlord does not receive the payment in the mail until Tuesday, January 3, 2023. You deduct $60,000 in 2022 (the year you paid the money). The landlord reports taxable income of $60,000 in 2023 (the year the money was received). This allows for the landlord to get next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.
Of course, it only makes sense to defer income if you think you will be in the same or a lower tax bracket next year. You don’t want to be hit with a bigger tax bill next year if additional income could push you into a higher tax bracket.
#4: Stop Billing Customers, Clients, and Patients
Here is one straightforward strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2022. Customers, clients, and insurance companies generally don’t pay until billed. Not billing customers and clients is a tax-planning strategy that business owners have used successfully for years.
#5 Buy Equipment
With bonus depreciation now at 100 percent buy your equipment and place it in service before December 31, and get a deduction for 100 percent of the cost in 2022.
Qualifying bonus depreciation and Section 179 purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture and certain qualifying vehicles.
That’s it for this week! We’ll go over 5 more next week. I am a real estate expert, not a tax professional and although I used to be, I am not currently a financial advisor. This is all for information purposes and it is well worth the investment to hire someone you trust for tax advice.
OUR MARKET THIS WEEK
We had no new condos and no new homes come onto the market this week. We currently have 29 active condos ranging from $439,900 to $2,995,000; the median condo price is $759,000. We currently have 43 active homes on the East Shore ranging from $1,025,000 to $64,500,000 with the median price of $3,290,000. Here’s a year-to-date local update:
Local East Shore Lake Tahoe, Nevada Stats – All Year-to-Date
Total Sales YTD:
Condos: 82 (↓10% YOY) | Homes: 82 (↓42% YOY)
The Median Sales Price:
Condos: $687,500 (0% YOY) | Homes: $1,560,000 (↑4% YOY)
Number of Sales Over $1 Million:
Condos: 17 = 21% (↑9% YOY) | Homes: 69 = 84% (↑9% YOY)
Highest Priced Sale:
Condos: $5,665,500 (↓5% YOY) | Homes: $32,000,000 (↓33% YOY)
Median Price Per Square Foot:
Condos: $595.68 (↑10% YOY) | Homes: $663.27 (↑9% YOY)
Median Days on the Market:
Condos: 78 (↑47% YOY) | Homes: 76 (↑13% YOY)
List to Sell Price:
Condos: 98% (↓7% YOY) | Homes: 95% (↓4% YOY)
Price Reductions this Week:
Condos: 0 | Homes: 0
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