Last-Minute Year-End General Business Income Tax Deductions

Last-MinuteYear-End General Business Income Tax Deductions

The purpose of this article is to reveal how you canget the IRS to owe you money.

Of course, the IRS will not likely cut you a check forthis money (although in the right circumstances, that will happen), but you’llrealize the cash when you pay less in taxes.

Here are six powerful business tax deductionstrategies you can easily understand and implement before the end of 2023.

1. Prepay Expenses Using the IRS Safe Harbor

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

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

Under this safe harbor, your 2023 prepayments cannotgo into 2025. This makes sense, because you can prepay only 12 months ofqualifying expenses under the safe-harbor rule.

For a cash-basis taxpayer, qualifying expenses includelease payments on business vehicles, rent payments on offices and machinery,and business and malpractice insurance premiums.

Example. Youpay $3,000 a month in rent and would like a $36,000 deduction this year. So onFriday, December 29, 2023, you mail a rent check for $36,000 to cover all ofyour 2024 rent. Your landlord does not receive the payment in the mail untilTuesday, January 2, 2024. Here are the results:

• You deduct $36,000 this year (2023—theyear you paid the money).
• The landlord reports $36,000 as rental income in2024 (the year he received the money).

You get what you want—the deduction this year.

The landlord gets what he wants—next year’s entirerent in advance, eliminating any collection problems while keeping the renttaxable in the year he expects it to be taxable.

2. Stop Billing Customers, Clients, and Patients

Here is one rock-solid, straightforward strategy toreduce your taxable income for this year: stop billing your customers, clients,and patients until after December 31, 2023. (We assume here that you or yourcorporation is on a cash basis and operates on the calendar year.)

Customers, clients, and insurance companies generallydon’t pay until billed. Not billing customers and clients is a time-testedtax-planning strategy that business owners have used successfully for years.

Example. Jake,a dentist, usually bills his patients and the insurance companies at the end ofeach week. This year, however, he sends no bills in December. Instead, hegathers up those bills and mails them the first week of January. Presto! Hepostponed paying taxes on his December 2023 income by moving that income to2024.

3. Buy Office Equipment

Increased limits on Section 179 expensing now enable100 percent write-offs on most equipment and machinery, whereas bonusdepreciation enables 80 percent write-offs. Either way, when you buy yourequipment or machinery and place it in service before December 31, you can geta big write-off this year.

Qualifying Section 179 and bonus depreciationpurchases include new and used personal property such as machinery, equipment,computers, desks, chairs, and other furniture (and certain qualifyingvehicles).

4. Use Your Credit Cards

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

If you operate your business as a corporation, and ifthe 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 suppose you operate your business as a corporationand are the personal owner of the credit card. In that case, the corporationmust reimburse you if you want the corporation to realize the tax deduction,which happens on the reimbursement date. Thus, submit your expense report andhave your corporation make its reimbursements to you before midnight onDecember 31.

5. Don’t Assume You Are Taking Too Many Deductions

If your business deductions exceed your businessincome, 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 verypossibly 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 yearsand get immediate tax refunds from prior years, but the Tax Cuts and Jobs Act(TCJA) eliminated this provision. Now, you can only carry your NOL forward, andit can only offset up to 80 percent of your taxable income in any one futureyear.

What does this all mean? Never stop documenting yourdeductions, and always claim all your rightful deductions. We have spoken withfar too many business owners, especially new owners, who don’t claim all theirdeductions when those deductions would produce a tax loss.

6. Deal with Your Qualified Improvement Property (QIP)

QIP is any improvement made by you to the interiorportion of a building you own that is non-residential real property (thinkoffice buildings, retail stores, and shopping centers)—if you place theimprovement in service after the date the building was placed in service.

The big deal with QIP is that it’s not considered realproperty that you depreciate over 39 years. QIP is 15-year property, eligible for

• immediate deduction using Section 179 expensing,and
• 80 percent bonus and MACRS depreciation

To get the QIP deduction in 2023, you need to placethe QIP in service on or before December 31, 2023.

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Last-Minute Year-End Tax Strategies for Your Stock Portfolio

When you take advantage of the tax code’s offset game,your stock market portfolio can represent a little gold mine of opportunitiesto reduce your 2023 income taxes.

The tax code contains the basic rules for this game,and once you know the rules, you can apply the correct strategies.

Here’s the basicgist:

• Avoid the high taxes (up to 40.8 percent)on short-term capital gains and ordinary income.
• Lower the taxes to zero—or if you can’t dothat, lower them to 23.8 percent or less by making the profits subject tolong-term capital gains.

Think of this: you are paying taxes at a 71.4 percenthigher rate when you pay at 40.8 percent rather than the tax-favored 23.8percent.

To avoid higher rates, here are seven possible taxplanning strategies.

Strategy 1

Examine your portfolio for stocks you want to unload,and make sales where you offset short-termgains subject to a high tax rate, such as 40.8 percent, with long-term losses (up to 23.8 percent).

In other words, make the high taxes disappear byoffsetting them with low-taxed losses, and pocket the difference.

Strategy 2

Use long-termlosses to create the $3,000 deduction allowed against ordinary income.

Again, you are trying to use the 23.8 percent loss tokill a 40.8 percent rate of tax (or a 0 percent loss to kill a 12 percent tax,if you are in the 12 percent or lower tax bracket).

Strategy 3

As an individual investor, avoid the wash-sale lossrule.

Under the wash-sale loss rule, if you sell a stock orother security and then purchase substantially identical stock or securitieswithin 30 days before or after the date of sale, you don’t recognize your losson that sale. Instead, the tax code makes you add the loss amount to the basisof your new stock.

If you want to use the loss in 2023, you’ll have tosell the stock and sit on your hands for more than 30 days before repurchasingthat stock.

Strategy 4

If you have lots of capital losses or capital losscarryovers and the $3,000 allowance is looking extra tiny, sell additionalstocks, rental properties, and other assets to create offsetting capital gains.

If you sell stocks to purge the capital losses, youcan immediately repurchase the stock after you sell it—there’s no wash-sale“gain” rule.

Strategy 5

Do you give money to your parents to assist them withtheir retirement or living expenses? How about children (specifically, childrennot subject to the kiddie tax)?

If so, considergiving appreciated stock to your parents and your non-kiddie-tax children. Why?If the parents or children are in lower tax brackets than you are, you get abigger bang for your buck by

• gifting them stock,
• having them sell the stock, and then
• having them pay taxeson the stock sale at their lower tax rates.

Strategy 6

If you are going to donate to a charity, considerappreciated stock rather than cash, because a donation of appreciated stockgives you more tax benefit.

It works like this:

• Benefit 1. You deduct the fairmarket value of the stock as a charitable donation
• Benefit2.You don’t pay any of the taxes you would have had to pay if you sold the stock.

Example. You bought a publicly traded stock for $1,000, and it’s now worth $11,000. If yougive it to a 501(c)(3) charity, the following happens:

• You get a tax deduction for $11,000.
• You pay no taxes on the $10,000 profit.

Two rules to know:

1. Your deductions for donating appreciatedstocks to 501(c)(3) organizations may not exceed 30 percent of your adjustedgross income.
2.  If your publicly traded stock donationexceeds the 30 percent, no problem. Tax law allows you to carry forward theexcess until used, for up to five years.

Strategy 7

If you could sell a publicly traded stock at a loss, do not give that loss-deduction stock toa 501(c)(3) charity. Why? If you sell the stock, you have a tax loss that youcan deduct. If you give the stock to a charity, you get no deduction for theloss—in other words, you can just kiss that tax-reducing loss goodbye.

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Last-MinuteYear-End Medical Plan Strategies

All small-business owners with one to 49 employeesshould have a medical plan for their business.

Sure, it’s true that with 49 or fewer employees, thetax law does not require you to have a plan, but you should.

When you have 49 or fewer employees, most medical plantax rules are straightforward.

Here are six opportunities for you to consider:

1. If you have not claimed the federal taxcredits equal to 100 percent of the required (2020) and the voluntary (2021)emergency sick leave and emergency family leave payments, amend those returnsnow. You likely made payments that qualify for the credits.
2. If you have a Section 105 plan in placeand have not been reimbursing expenses monthly, do a reimbursement now to getyour 2023 deductions, and then put yourself on a monthly reimbursement schedulein 2024.
3. If you want to implement a Qualified SmallEmployer Health Reimbursement Arrangement (QSEHRA), but you have not yet doneso, make sure to get that done correctly now. You are late, so you could sufferthat $50-per-employee penalty should your lateness be found out.
4. But if you are thinking of the QSEHRA andwant to help your employees with more money and flexibility, consider theIndividual Coverage Health Reimbursement Arrangement (ICHRA) instead. It’s gotmore advantages.
5. If you operate your business as an Scorporation and want a Form 1040 above-the-line tax deduction for the cost ofyour health insurance, you need the S corporation to (a) pay for or reimburseyou for the health insurance and (b) put that insurance cost on your W-2. Makesure the reimbursement happens before December 31 and you have thereimbursement set up to show on the W-2.
6. If you operate your business as an Scorporation and want a Form 1040 above-the-line tax deduction for the cost ofyour health insurance, you need the S corporation to (a) pay for or reimburseyou for the health insurance and (b) put that insurance cost on your W-2. Makesure the reimbursement happens before December 31 and you have thereimbursement set up to show on the W-2.

Last-Minute Year-End Retirement Deductions

The clock continues to tick. Your retirement is oneyear closer.

You have time before December 31 to take steps thatwill help you fund the retirement you desire. Here are five things to consider.

1. Establish Your 2023 Retirement Plan

First, a question: do you have your (or yourcorporation’s) retirement plan in place?

If not, and if you have some cash you can put into aretirement plan, get busy and put that retirement plan in place so you canobtain a tax deduction for 2023.

For most defined contribution plans, such as 401(k)plans, you (the owner-employee) are both an employee and the employer, whetheryou operate as a corporation or as a sole proprietorship. And that’s goodbecause you can make both the employer and the employee contributions, allowingyou to put away a good chunk of money.

2. Claim the New, Improved Retirement Plan Start-UpTax Credit of up to $15,000

By establishing a new qualified retirement plan (suchas a profit-sharing plan, 401(k) plan, or defined benefit pension plan), aSIMPLE IRA plan, or a SEP, you can qualify for a non-refundable tax creditthat’s the greater of

• $500 or
• the lesser of (a) $250 multiplied by thenumber of your non-highly compensated employees who are eligible to participatein the plan, or (b) $5,000.

The law bases your credit on your “qualified start-upcosts.” For the retirement start-up credit, your qualified start-up costs arethe ordinary and necessary expenses you pay or incur in connection with

• the establishment or administration of theplan, and
• the retirement-related education ofemployees for such plan.

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3. Claim the New 2023 Small Employer PensionContribution Tax Credit (up to $3,500 per Employee)

The SECURE 2.0 passed in 2022 included an additionalcredit for your employer retirement plan contributions on behalf of youremployees. The new up-to-$1,000-per-employee tax credit begins with the planstart date.

The new credit is effective for 2023 and later.

Exception. The new $1,000credit is not available for employer contributions to a defined benefit plan orelective deferrals under Section 402(g)(3).

In the year you establish the plan, you qualify for acredit of up to 100 percent of your employer contribution, limited to $1,000per employee. In subsequent years, the dollar limit remains at $1,000 peremployee, but your credit is limited to:

• 100 percent in year 2
• 75 percent in year 3
• 50 percent in year 4
• 25 percent in year 5
• No credit in year 6 and beyond

Example. You establish your retirement planthis year and contribute $1,000 to each of your 30 employees’ retirement. Youearn a tax credit of $30,000 ($1,000 x 30).

If you have between 51 and 100 employees, you reduceyour credit by 2 percent per employee in this range. With more than 100employees, your credit is zero.

Also, you earn no credit for employees with 2023 wagesin excess of $100,000. In future years, the $100,000 threshold will be adjustedfor inflation.

4. Claim the New Automatic Enrollment $500 Tax Creditfor Each of Three Years ($1,500 Total)

The first SECURE Act added a non-refundable credit of$500 per year for up to three years, beginning with the first taxable year(2020 or later) in which you, as an eligible small employer, include anautomatic contribution arrangement in a 401(k) or SIMPLE plan.

The new $500 auto-contribution tax credit is inaddition to the start-up credit and can apply to both newly created andexisting retirement plans. Further, you don’t have to spend any money totrigger the credit. You just need to add the auto-enrollment feature (whichdoes contain a provision that allows employees to opt out).

5. Convert to a Roth IRA

Consider converting your 401(k) or traditional IRA toa Roth IRA.

You first need to answer this question: How much taxwill you have to pay to convert your existing plan to a Roth IRA? With thisanswer, you now know how much cash you need on hand to pay the extra taxescaused by the conversion to a Roth IRA.

Here are four reasons you should consider convertingyour retirement plan to a Roth IRA:

1. You can withdraw the monies you put intoyour Roth IRA (the contributions) at any time, both tax-free and penalty-free,because you invested previously taxed money into the Roth account.
2. You can withdraw the money you convertedfrom the traditional plan to the Roth IRA at any time, tax-free. (But if youmake that conversion withdrawal within five years of the conversion, you pay a10 percent penalty. Each conversion has its own five-year period.)
3.  When you have your money in a Roth IRA,you pay no tax on qualified withdrawals (earnings), which are distributionstaken after age 59 1/2, provided you’ve had your Roth IRA open for at leastfive years.
4. Unlike with the traditional IRA, you don’thave to receive required minimum distributions from a Roth IRA when you reachage 72—or to put this another way, you can keep your Roth IRA intact andearning money until you die. (After your death, the Roth IRA can continue toearn money, but someone else will be making the investment decisions andenjoying your cash.)

Last-Minute Section 199A Tax Reduction Strategies

Remember to consider your Section 199A deduction inyour year-end tax planning. If you don’t, you could end up with an undesirable$0 for your deduction amount.

Here are three possible year-end moves that could, inthe right circumstances, simultaneously (a) reduce your income taxes and (b)boost your Section 199A deduction.

First Things First

If your taxable income is above $182,100 (or $364,200on a joint return), your type of business, wages paid, and property canincrease, reduce, or eliminate your Section 199A tax deduction.

If your deduction amount is less than 20 percent ofyour qualified business income (QBI), then consider using one or more of thestrategies described below to increase your Section 199A deduction.

Strategy 1: Harvest Capital Losses

Capital gains add to your taxable income, which is theincome that

• determines your eligibility for theSection 199A tax deduction,
• sets the upper limit (ceiling) on theamount of your Section 199A tax deduction, and
• establishes when you need wages and/orproperty to obtain your maximum deductions.

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If the capital gains are hurting your Section 199Adeduction, you have time before the end of the year to harvest capital lossesto offset those harmful gains.

Strategy 2: Make Charitable Contributions

Since the Section 199A deduction uses your Form 1040taxable income for its thresholds, you can use itemized deductions to reduceand/or eliminate threshold problems and increase your Section 199A deduction.

Charitable contribution deductions are the easiest wayto increase your itemized deductions before the end of the year (assuming youalready itemize).

Strategy 3: Buy Business Assets

Thanks to Section 179 expensing, you can write off 100percent of most property and equipment. Alternatively, you can use bonus andMACRS depreciation to write off more than 80 percent. To make this happen, youneed to buy the assets and place them in service before December 31, 2023.

The big asset purchases and write-offs can help yourSection 199A deduction in two ways:

1. They can reduce your taxable income andincrease your Section 199A deduction when they get your taxable income underthe threshold.
2. They can contribute to an increasedSection 199A deduction if your Section 199A deduction currently uses thecalculation that includes the 2.5 percent of unadjusted basis in yourbusiness’s qualified property. In this scenario, your asset purchases increaseyour qualified property, which in turn increases your Section 199A deduction.

Last-Minute Year-End Tax Strategies for Marriage, Kids, and Family

Are you thinking of getting married or divorced? Ifso, consider December 31, 2023, in your tax planning.

Here’s another planning question: Do you give money tofamily or friends (other than your children, who are subject to the kiddietax)? If so, you need to consider the zero-taxes planning strategy.

And now consider your children who are under the ageof 18. Have you paid them for the work they’ve done for your business? Have youpaid them the right way?

Here are five strategies to consider as we come to theend of 2023.

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1. Put Your Children on Your Payroll

If you have a child under the age of 18 and youoperate your business as a Schedule C sole proprietor or as a spousalpartnership, you need to consider having that child on your payroll. Why?

• First, neither you nor your child wouldpay payroll taxes on the child’s income.
• Second, with a traditional IRA, the childcan avoid all federal income taxes on up to $20,350 of earned income.

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If you operate your business as a corporation, you canstill benefit by employing the child even though both your corporation and yourchild suffer payroll taxes.

2. Get Divorced after December 31

The marriage rule works like this: you are consideredmarried for the entire year if you are married on December 31.

Although lawmakers have made many changes to eliminatethe differences between married and single taxpayers, the joint return willwork to your advantage in most cases.

Warning onalimony! The TCJA changed the tax treatment of alimony payments under divorce andseparate maintenance agreements executed afterDecember 31, 2018:

• Under the old law, the payor deductsalimony payments and the recipient includes the payments in income.
• Under the new law, which applies to allagreements executed after December 31, 2018, the payor gets no tax deductionand the recipient does not recognize income.

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3. Stay Single to Increase Mortgage Deductions

Two single people can deduct more mortgageinterest than a married couple can.

If you own a home with someone other thana spouse, and if you bought it on or before December 15, 2017, you individuallycan deduct mortgage interest on up to $1 million of a qualifying mortgage.

For example, if you and your unmarriedpartner live together and own the home together, the mortgage ceiling ondeductions for the two of you is $2 million. If you get married, the ceilingdrops to $1 million.

If you and your unmarried partner bought your houseafter December 15, 2017, the reduced $750,000 mortgage limit applies, and yourceiling is $1.5 million.

4. Get Married on or before December 31

Remember, if you are married on December 31, you aremarried for the entire year.

If you are thinking of getting married in 2024, youmight want to rethink that plan for the same reasons that apply to divorce (asdescribed above). The IRS could make considerable savings available to you forthe 2023 tax year if you get married on or before December 31, 2023.

To know your tax benefits and detriments, you bothmust run the numbers in your tax returns. If the numbers work out, you may wantto take a quick trip to the courthouse.

5. Make Use of the 0 Percent Tax Bracket

In the old days, you used this strategy with yourcollege student. Today, this strategy does not work with that student, becausethe kiddie tax now applies to students up to age 24.

But this strategy is a good one, so ask yourself thisquestion: do I give money to my parents or other loved ones to make their livesmore comfortable?

If the answer is yes, is your loved one in the 0percent capital gains tax bracket? The 0 percent capital gains tax bracketapplies to a single person with less than $44,625 in taxable income and to amarried couple with less than $89,250 in taxable income.

If the parent or other loved one is in the 0 percentcapital gains tax bracket, you can add to your bank account by giving thisperson appreciated stock rather than cash.

Example. Yougive Aunt Millie shares of stock with a fair market value of $20,000, for whichyou paid $2,000. Aunt Millie sells the stock and pays zero capital gains taxes.She now has $20,000 in after-tax cash, which should take care of things for awhile.

Had you sold the stock, you would have paid taxes of$4,284 in your tax bracket (23.8 percent x $18,000 gain).

Of course, $3,000 of the $20,000 you gifted goesagainst your $12.92 million estate tax exemption if you are single.

If you’re married and you make the gift together, youeach have a $17,000 gift-tax exclusion, for a total of $34,000, and thateliminates the gift tax. But you must file a gift-tax return that shows thegovernment you split the gift.

2023 Last-Minute Vehicle Purchases to Save on Taxes

Here’s an easy question: Do you need more 2023 taxdeductions? If the answer is yes, continue reading.

Next easy question: do you need a replacement businessvehicle?

If so, you can simultaneously solve or mitigate thefirst problem (needing more deductions) and the second problem (needing areplacement vehicle) if you can get your replacement vehicle in service on orbefore December 31, 2023. Don’t procrastinate.

To ensure compliance with the “placed in service”rule, drive the vehicle at least one business mile on or before December 31,2023. In other words, you want to both own and drive the vehicle to ensure thatit qualifies for the big deductions.

Now that you have the basics, let’s get to the taxdeductions.

1. Buy a New or Used SUV, Crossover Vehicle, or Van

Let’s say that on or before December 31, 2023, you oryour corporation buys and places in service a new or used SUV orcrossover vehicle that the manufacturer classifies as a truck and that has agross vehicle weight rating (GVWR) of 6,001 pounds or more. This newlypurchased vehicle gives you four benefits:

1. Bonus depreciation of 80 percent
2. Section 179 expensing of up to $28,900
3. MACRS depreciation using the five-yeartable
4. No luxury limits on vehicle depreciationdeductions

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Example. You buy a $100,000 SUV with a GVWRof 6,080 pounds, which you will use 90 percent for business use. Your write-offcan look like this:

• $28,900 in Section 179 expensing
• $48,880 in bonus depreciation
• $2,440 in 20 percent MACRS depreciation,or $611 if the mid-quarter convention applies

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So the 2023 write-off on this $90,000 (90 percentbusiness use) SUV can be as high as $80,220 ($28,900 + $48,880 + $2,440).

2. Buy a New or Used Pickup

If you or your corporation buys and places in servicea qualifying pickup truck (new or used) on or before December 31, 2023, thenthis newly purchased vehicle gives you four big benefits:

1. Bonus depreciation of up to 80 percent
2. Section 179 expensing of up to $1,160,000
3. MACRS depreciation using the five-yeartable
4. No luxury limits on vehicle depreciationdeductions

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To qualify for full Section 179 expensing, the pickuptruck must have

• a GVWR of more than 6,000 pounds, and
• a cargo area (commonly called a “bed”) ofat least six feet in interior length that is not easily accessible from thepassenger compartment.

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Example. You pay $55,000 for a qualifyingpickup truck that you use 91 percent for business. You use Section 179 to writeoff your entire business cost of $50,050 ($55,000 x 91 percent).

Short bed. If thepickup truck passes the more-than-6,000-pound-GVWR test but fails thebed-length test, tax law classifies it as an SUV. That’s not bad. The vehicleis still eligible for expensing of up to the $28,900 SUV expensing limit and 80percent bonus depreciation.

3. Buy an Electric Vehicle

If you purchase an all-electric vehicle or a plug-inhybrid electric vehicle, you might qualify for a tax credit of up to $7,500.You take the credit first, and then follow the rules that apply to the vehicleyou purchased.

2023 Last-Minute Year-End Tax Deductions for Existing Vehicles

December 31 is just around the corner.

That’s your last day to find tax deductions availablefrom your existing business and personal (yes, personal) vehicles that you canuse to cut your 2023 taxes. But don’t wait. Get on this now!

1. Take Back Your Child’s or Spouse’s Car and Sell It

We know—this sounds horrible. But stay with us.

What did you do with your old business car? Do youstill have it? Is your child driving it? Or is your spouse using it as apersonal car?

We ask because that old business vehicle could have abig tax loss embedded in it. If so, your strategy is easy: sell the vehicle toa third party before December 31 so you have a tax-deductible loss this year.

Your loss deduction depends on your percentage ofbusiness use. That’s one reason to sell this vehicle now: the longer you letyour spouse or teenager use it, the smaller your business percentage becomesand the less tax benefit you receive.

2. Cash In on Past Vehicle Trade-Ins

In the past (before 2018), when you traded vehiclesin, you pushed your old business basis to the replacement vehicle under the oldSection 1031 tax-deferred exchange rules. (But remember, these rules no longerapply to Section 1031 exchanges of vehicles or other personal propertyoccurring after December 31, 2017.)

Whether you used IRS mileage rates or theactual-expense method for deducting your business vehicles, you could stillfind a significant deduction here.

Check out how Sam finds a $27,000 tax-loss deductionon his existing business car. Sam has been in business for 15 years, duringwhich he

• converted his original personal car (carone) to business use;
• then traded in the converted car for a newbusiness car (car two);
• then traded in car two for a replacementbusiness car (car three); and
• then traded in car three for anotherreplacement business car (car four), which he is driving today.

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During the 15 years Sam has been in business, he hasowned four cars. Further, he deducted each of his cars using IRS standardmileage rates.

If Sam sells his mileage-rate car today, he willrealize a tax loss of $27,000. The loss is the accumulation of 15 years of caractivity, during which Sam never cashed out because he always traded cars.(This was before he knew anything about gain or loss.)

Further, Sam thought his use of IRS mileage rates wasthe end of it—nothing more to think about (wrong thinking here, too).

Because the trades occurred before 2018, they wereSection 1031 exchanges and deferred the tax results to the next vehicle. IRSmileage rates contain a depreciation component. That’s one possible reason Samunknowingly accumulated his significant deduction.

To get a mental picture of how this one sale producesa cash cow, consider this: when Sam sells car four, he is really selling fourcars—because the old Section 1031 exchange rules added the old basis of eachvehicle to the replacement vehicle’s basis.

Examine your vehicle for this possible loss deduction.Did you procure the business vehicle you are driving today in 2017 or earlier?Did you acquire this vehicle with a trade-in? If so, your tax loss deductioncould be big!

3. Put YourPersonal Vehicle in Business Service

Lawmakers enacted 80 percent bonus depreciation for2023, creating an effective strategy that costs you nothing but can producesubstantial deductions.

Are you (or your spouse) driving a personal SUV,crossover vehicle, or pickup truck with a gross vehicle weight rating greaterthan 6,000 pounds? Would you like to increase your tax deductions for thisyear?

If so, place that personal vehicle in business servicebefore December 31.

4. Check Your Current Vehicle for a Big Deduction

Your current business vehicle, regardless of when itwas purchased, could have a big deduction waiting for you.

Example. Jim purchased a $60,000 vehicle in2020 and used it 85 percent for business. During the four years (2020, 2021,2022, and 2023), Jim depreciated the vehicle $10,000. If Jim sells the vehicletoday for $25,000, Jim has a $19,750 tax loss.

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