Taxes are often the most significant expense for those who own small businesses. However, there are many ways to minimize them, and some are less known than others. For example, you can get a tax deduction for donating a car. You can also get a deduction for spending money on capital assets like furniture, equipment, and even cars. Let’s take a look.
Buying Stuff and Paying Bonuses
Despite the possible economic slowdown on the horizon, a lot of businesses did pretty well in 2022. If you can pay out bonuses to your employees by the end of the year, you can reduce your taxes and make headway in retaining key employees in this current environment of tight labor. As mentioned earlier, buying stuff will also help reduce your taxes. Many businesses can deduct up to $1.08 million in expenses for capital assets. The main requirement for buying stuff is that it be placed into service for your business by the end of the year. That means you can even finance the purchase and still get the full deduction for the purchase price. What can you buy? Just about anything that serves your business. A few examples include furniture, equipment, fixtures, and cars.
Cleaning Your Balance Sheet
Some accountants also recommend that businesses clean up balance sheets to accelerate expenses and defer income. For example, if you have long overdue account receivables, you can consider writing them off. You can’t get a tax deduction from these accounts until you remove them from your balance sheet. This also applies to old inventory. If you can dispose of old inventory, you can write the amounts paid for it off as well. For businesses that report income and expenses as they receive and disburse cash, then it’s recommended that they look at insurance and other expenses that can be accelerated into this year for a deduction.
Donating Cars or Other Items
Another way to get tax deductions is through donations. There are three main categories of deductible charity gifts:
1. Cash
2. Property or equipment
3. Travel expenses from helping a charitable organization
Cars fall under the equipment category in most cases. It may depend on the charity. Some charities will pick up your vehicle, sell it, and use the proceeds to help the charity. The IRS allows you to claim a deduction on a donated vehicle as follows:
1. If the donated vehicle is sold for less than $500, you can claim fair market value up to $500 depending on what it sells for.
2. If the vehicle is sold for over $500, then you can claim the exact amount it sold for.
Whenever you make a valuable gift to charity, you’ll want to get a receipt or something in writing that you can use as proof for a tax deduction.
With 2022 on its way out, it’s definitely time to start thinking about how to minimize your taxes as a small business owner. A tax deduction for donating a car is one of the great ways to do this.
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