Today, on the ides of November, we’ll continue to consider ways to minimize our tax bills.  We covered personal taxes last Friday– today, we’ll address business issues.

Safe Harbor Rules 

These regulations provide special benefits to cash-basis taxpayers.  The regs allow a company to prepay and deduct (certain) qualifying expenses up to 12 months in advance.  The IRS won’t challenge, adjust, or change these deductions.

Which means we can pay our entire 2022 rent during the month of December 2021.  Depending upon the rent we pay, we are talking about a significant reduction in taxable income for our companies.

It’s not just business rents.  Other qualifying expenses include business vehicle lease payments, office machinery (like copying machines) rents, and insurance premiums (business and/or malpractice).

And, we should be really nice guys, too. If we mail our 2022 rent payments on 31 December 2021, we get the deduction.  (If the rent is $ 4000 a month, we are talking about a $ 48000 reduction in our taxable income.)  And, since we didn’t mail the check until the 31^st, our landlord won’t get the rent payment until 2022.  So, s/he won’t have income to report in 2021, but during the expected year of 2022.

(Please make sure you tell the landlord that- so s/he won’t return the funds to you, thinking you made a mistake!)

By the way, make sure you have proof of that mailing.  In our case, our post office has a machine that lets us enter the address of mailing and pay the postage.  We then have proof of mailing, where it went, and the day we mailed it.  If your post office doesn’t have such a machine, you should pay extra to have tracking added to your envelope.

Oh, and another thing.  The 1099 form with which we report expenses to the IRS… We only include the 2021 payments on that form.  That extra check- the one we wrote in 2021 for 2022 expenses- will be recorded on our 1099 submissions for 2022.

Accounting Shutdown (of sorts)

Already have a pretty good year going?  Then, we should stop billing our clients right about now.  If we don’t send out bills, we won’t receive payments.  Well just bill them on the 1rst of January 2022, and get our cash then.  (This does mean we determined we will have enough cash on hand to be fine until late January or early February 2022.)

Go on a buying spree?

You know that new computer you wanted to get in 2022?  Now is the time to acquire it.

This rule covers new and used stuff- computers, desks, furniture, chairs, copies, equipment, and machinery.  It also covers certain vehicles, as well.

Given that we have bonus depreciation and Section 179 expensing, we will get to deduct the full value of the computer or machinery we buy now.

Note- this benefit will reduce our Qualified Business Credit (Section 199A).  That’s the 20% reduction in taxable income for pass-through businesses.

Qualified Improvement Property (QIP)

First you should know that the screwup developed as part of the Tax Cut and Jobs Act (TCJA), the ridiculous tax cut program for the rich and businesses under the Trump Administration, has been fixed.  Congress used the CARES Act to let us get our proper deduction for QIP.

QIP is any improvement to the interior portions of non-residential real property we own.  As long as this improvement is made AFTER we placed said non-residential real property in service.   Instead of being considered 39 year property, QIP is 15 year property.  Oh, wait. It is property subject to bonus depreciation and/or Section 179 expensing.  As long as the QIP is in service on or before 31 December 2021, we get those deductions this year.

(Had we had QIP property for 2018 or 2019, that was considered 39 year property.  We can file an amended tax return and fix that situation.  Giving us some pretty nice coin in the process.)

We’re done- for now.  Happy tax savings to you!