Below are some last minute tax deduction ideas for Dental Offices to Consider. If you are part of our Tax Planning and Consulting Program, we already incorporated most of these ideas into your 2022 strategy to lower your tax payments. But this is a good refresher to see if anything was missed before the end of the year.
1: Prepay Expenses Using the IRS Safe Harbor Method
Under this safe harbor, your 2022 prepayments cannot go into 2023. 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 Friday, December 30, 2022, you mail a rent check for $36,000 to cover all of your 2023 rent. Your landlord does not receive the payment in the mail until Tuesday, January 3, 2023. Here are the results:
- You deduct $36,000 in 2022 (the year you paid the money).
- The landlord reports taxable income of $36,000 in 2023 (the year he received the money).
2: Stop billing customers, clients and patients
Example. Jake, a doctor, usually bills his patients and the insurance companies at the end of each week. This year, however, he sends no bills in December. Instead, he gathers up those bills and mails them the first week of January. Presto! He postponed paying taxes on his December 2022 income by moving that income to 2023.
3: Buy Equipment or Supplies and place into service before Dec 31st
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 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).
4: Fix the your Qualified Improvement Property deduction
In the CARES Act, Congress finally fixed the qualified improvement property (QIP) error that it made when enacting the TCJA.
QIP is any improvement made by you to the interior portion of a building you own that is non-residential real property (think office buildings, retail stores, and shopping centers)—if you place the improvement in service after the date you place the building in service.
The big deal: QIP is not real property that you depreciate over 39 years. QIP is 15-year property, eligible for immediate deduction using either 100 percent bonus depreciation or Section 179 expensing. To get the QIP deduction in 2022, you must place the QIP in service on or before December 31, 2022.
Planning note. If you have QIP property on an already filed 2019 return that you did not amend, it’s on that return as 39-year property. You need to fix that—and likely add some cash to your bank account because of the fix.
5: 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 starting your business, you could very possibly have an NOL. You could have a loss year even with an ongoing, successful business.
For questions please feel free to contact one of our Small Business Consultants by calling 713-396-3172 or emailing omar@virjeeconsulting.com
Disclaimer- Advise in this blog should not be taken as tax advise. Each person’s tax circumstance is different and unique. Using these strategies without full knowledge of the current IRS rules and regulations regarding the specific items discussed can result in heavy fines, penalties and interest. Please discuss the guidance in this document with a tax expert before making any decisions.
