Thanksgiving is still thirteen days away, but the holiday shopping frenzy is upon us, and “Black Friday” deals are already popping up in your inbox and Insta feed. While your shopping lists are probably focused on Christmas gifts (and maybe a few personal indulgences…why not take advantage of all those deals to snag a few things from your own list, right?), it’s a smart play to think about doing a little end-of-year shopping for your business as well.
If you’re trying to minimize your 2022 tax burden, now is the time to pack in those last minute and big-ticket expenditures that can reduce your taxable income come April. Read on for a list of eligible expenses you should consider springing for before the year is out. Want more personalized guidance on 4th quarter tax planning and setting yourself up to crush your goals in 2023? Reach out for a free consultation with one of our experts!
Spend to save: 5 ways to use end-of-year expenses to manage your tax burden
1) Office improvements and repairs
If your business has a physical location, you can deduct the cost of making minor repairs this year if you complete the repairs before December 31.
Note that it’s important to pay attention to the way the IRS categorizes the cost of property maintenance as either “repairs” or “improvements.” Repairs can be deducted in one year, while the cost of improvements must be depreciated over a period of up to 27.5 years. How to tell the difference? In the IRS’s eyes, repairs become improvements if they include “betterment, adaptation, or restoration” of a property.
If you’re claiming a space in your home as an office space, be aware that the IRS has strict rules about what qualifies. The space must be used solely for a business purpose in order to legally deduct expenses related to it.
If you have questions about expenditures on office maintenance and repairs, check with your tax expert for specific advice.
2) Equipment
If you need new equipment, end-of-year sales can make this an appealing time to make big purchases. And from a tax and budgeting perspective, the timing could not be better. By the time you get to the fourth quarter, you typically have a good idea of where your budget stands for the year, and how much money you have at your disposal to spend. And strategically purchasing equipment at the end of the year is a great way to reduce your taxable income.
Big holiday sales in the tech sector make technology buys appealing at this time of year. New computers, phones, or other tech equipment should be on your shopping list if you’re trying to reduce your 2022 tax burden. Other business specific equipment can also play a role in your November and December spending plan.
3) Business Services
The end of the year is a great time to prepay for business services you will use in the new year. Advertising expenses, office expenses, and tech and media subscriptions can all usually be prepaid annually, and vendors will often offer specials and discounts to meet sales quotas at the end of the year.
4) Vehicles
If you’ve done much car shopping, you know that the cost of this year’s model often drops precipitously when next year’s model is about to roll off the assembly line. Dealers often offer great end-of-year deals to clear out stale inventory and make space for those shiny new models, so this can be a great time to make a big purchase at a great price while also reaping some tax benefits.
5) Employee Bonuses
If you pay employees a yearly bonus, consider paying them out before December 31 to minimize this year’s tax burden. If bonuses are not typically a part of your compensation structure but you need to offset some income, consider paying a one-time holiday bonus as a great way to build morale, generate loyalty, and spread some festive cheer. Everybody loves a surprise that puts a little more green in their pocket, especially at the holidays!
Want more tax planning tips? We’re here to help!
These five tips will get you started with smart spending during the holiday season, but if you want end-of-year tax planning advice tailored to your specific needs, let us connect you with one of our CPAs. They’re highly qualified, and they work with entrepreneurs and small business owners every day to help them keep more of the money they’ve worked hard for. Reach out for more information!