2019 Last-Minute Business Tax Deductions

Here are five powerful business tax deduction strategies that you can easily understand and implement before the end of 2019.


Prepay Expenses Using the IRS Safe Harbor

You just have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2019 prepayments cannot go into 2021. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.

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.

Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Tuesday, December 31, 2019, you mail a rent check for $36,000 to cover all of your 2020 rent. Your landlord does not receive the payment in the mail until Thursday, January 2, 2020.

Here are the results:

  • You deduct $36,000 in 2019 (the year you paid the money).
  • The landlord reports $36,000 in 2020 (the year he received the money).

You get what you want—the deduction this year.

The landlord gets what he wants—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.

Don’t surprise your landlord: if he had received the $36,000 of rent paid in advance in 2019, he would have had to pay taxes on the rent money in tax year 2019.


Stop Billing Customers, Clients, and Patients

Here is one rock-solid, time-tested, easy strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2019. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

Customers, clients, 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.

Example. Jim Schafback, a dentist, usually bills his patients and the insurance companies at the end of each week; however, in December, he sends no bills. Instead, he gathers up those bills and mails them the first week of January. Presto! He just postponed paying taxes on his December 2019 income by moving that income to 2020.


Buy Office Equipment

With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31, and get a deduction for 100 percent of the cost in 2019.

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).


Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.

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.


Don’t Assume You Are Taking Too Many Deductions

If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL.

If you are just starting your business, you could very possibly have an NOL. You could have a loss year even with an ongoing, successful business.

You used to be able to carry back your NOL two years and get immediate tax refunds from prior years; however, the Tax Cuts and Jobs Act eliminated this provision. Now, you can only carry your NOL forward, and it can only offset up to 80 percent of your taxable income in any one future year.

What does this all mean? You should never stop documenting your deductions, and you should always claim all your rightful deductions. We have spoken with far too many business owners, especially new owners, who don’t claim all their deductions when those deductions would produce a tax loss.

Today was a Great Day

Today turned out to be a great day.  I was pretty busy with appointments, but I think I saved everyone I met money today.  I love that part of my work.

My first appointment was simple. My client is a veteran and just bought a new home.  It came up that he has not claimed his veteran’s exemption on his Indiana real estate taxes.

My next appointment was an S-Corporation owner that had set his wages way too high.  By doing that, he was overpaying Social Security on Medicare taxes by about $12,000.

The next one was an owner of a construction company that bought enough equipment this year to have a loss on his tax return.  I suggested converting a large portion his IRA to a Roth this year.  Tax free this year AND tax free when it comes out!  It doesn’t get any better than that.

The next one was a mom that had a W-2 job.  I suggested starting a small business in order to take advantage of all of the deductions available to business owners.  (See my blog 7 Reasons Even Grownups Need Lemonade Stands) She had been considering it anyway and now she’s about to embark on a great side hustle.

The last opportunity of the day was a dentist that wants to sell his practice.  There are so many tax savings options here that I can’t even begin to explain it here.

Keep my winning streak going.  Give me a call before the end of the year.  Maybe we can save you thousands, too.

7 Reasons Even Grownups Need Lemonade Stands

Every year about this time, my clients start asking how to reduce their tax bill.  Sure, I have a tool chest full of goodies, but you know how it is.  Fancy tools are really needed when they are needed but only work for one job.  The basic tools may be all you need to get the job done.

One great option for tax savings everybody can do is start a side business.  No, you don’t need to devote countless hours to creating your next full-time gig.  Earning just a little income gives you a great opportunity to deduct so many expenses that you would have still been paying for anyway. 

Here are a few things that you would have purchased anyway that become deductible if used in your business:

  • Home office – If you have a spare room that you can set aside as a home office, you can deduct $5 per square foot up to $1500. To claim a home office, the space must be used exclusively for the business and you cannot deduct more than the profit of the business.  You are already paying for the space.  Deduct it.
  • Telephone – Did you know that in court cases 100% of your cell phone that is used in business can be deducted?  As long as you have a landline in your home, there is no need to allocate personal use of your cell phone.  This is also true for family members that have a legitimate reason for having a business phone.
  • Auto miles – If you drive to Costco to get office supplies, deduct your mileage.  It doesn’t matter if you pick up some personal items, too.  You’ll probably need stamps, too.  Deduct the miles.
  • Travel – Here’s a good one.  Get a customer or vendor in Orlando and have an appointment with them when you go to Disney.  The whole trip won’t be deductible, but your flight will be.  The rest of the family tickets probably won’t be deductible unless there is a business reason for them to be there.  Make sure you are following the rules on this.
  • Computer – At least a percentage of the cost can be deducted.  Check with your advisor.
  • Health insurance – This is limited to the income of the business but if you are paying for your own premiums, they can be a deduction to reduce your adjusted gross income.  If you didn’t have a business, these premiums are treated as an itemized deduction and are not fully deductible.
  • Pay your kids – It can’t get any better than this.  If the kids really can perform tasks for the business, give them a paycheck and have them pay their own expenses.  If you are a sole proprietor, not only are you shifting the income to a lower (probably zero) bracket, but you are saving on Social Security and Medicare taxes.  You will need to give them a W-2 so make sure you get some help with this.