Accelerating Tax Deductions

Let's talk about accelerating tax deductions. This is probably one of the most popular questions that I get asked: "Bob, what can I spend money on now to save on my taxes?" And that's ultimately what we're trying to do: get as many deductions as we can to reduce our tax bill.

Now, I want to walk you through one of my concepts. It's not necessarily about spending money just to get a tax deduction.

Here's why: if we think of income as $100 and our tax rate as 20% for simplicity, if we pay taxes on that $100, we are left with $80. If we spend money just to get a tax deduction, we're saving $20 overall. So instead of having $80 left after paying the tax, we have $20 left, which is our tax savings.

Which one is better?

I would go with the $80 left in my account. Now, it doesn't mean that we don't need to spend that $100 on an asset or something inside our business to help grow or better prepare ourselves for the future if those are necessary. 100% we want to look at strategic timing; strategic timing is what's going to accelerate our tax deductions for us.

Let me give you an example that will probably get you thinking about how you could do this in your own business. One example would be investing in a new coaching program. We're heading into 2024 soon, and I want to take this course or bring on this coach in 2024. It's going to cost me $50,000 to invest in this. Is it the best investment I can make? Absolutely. But if I don't invest until 2024, I won't get that deduction until 2024. I want it now in 2023, where I can save on taxes.

So instead, what we do is we buy or invest in it at the end of 2023 and put that money in there. We expense it in 2023, gaining access to the tax benefit now, and then we use that coaching service to boost our business in 2024. That strategic timing accelerates the deduction and gets us access to tax savings a year before we should.

Here's another example: if you're in a business making a lot of money and you have excess cash, one thing we can do is start investing in assets like real estate to get upfront deductions.

So, what does an upfront deduction look like? If we're going to invest in property, let's say a $1,000,000 property, it will cost us $100,000 or $200,000 in down payment. But what happens is, if the property needs a lot of work and we're essentially replacing something that's already there, such as flooring, a furnace, roof, or windows - not replacing it with something better, newer, or more expensive like a steel roof instead of an asphalt roof - we get immediate access to that deduction.

If you have that type of investment in your business, it will accelerate deductions for you to gain quick access to it. We also get depreciation on real estate. This is just one example of how we can accelerate deductions upfront, and then the asset will likely appreciate because of the investment, potentially generating more rental income and increasing its future value. However, we gain access to that accelerated deduction now and pay more tax down the road as the property continues to earn income.

These are a few ideas on how to access strategic deductions earlier and accelerate them to help save on your tax bill this year. And then we look at next year and ask ourselves, "How do we do the same thing?"

Ready to optimize your tax savings and ensure your business thrives financially? Take advantage of our expert tax services today! Our team of experienced professionals will guide you through strategic deduction acceleration techniques and help you make the right investments for maximum tax benefits. Don't wait until tax season; start saving now! Contact us to schedule a consultation and take control of your business's financial future. Let's work together to secure your success!