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Some end-of-year tax magic: deduct today, pay in 2023

Small business owner making end-of-year purchases for her company.

2022 is quickly moving toward its end. You’re probably busy preparing your business for the holidays, but it may also be time to start thinking about maximizing this year’s tax deductions.

Many companies make large end-of-year purchases to ensure they’re taking advantage of eligible tax benefits and holiday sales. But, what if by December you don’t have that much cash left in your annual budget or you’re in a temporary cash flow crunch?

Luckily you can still utilize this strategy. In this article, we’ll cover how to do this right without breaking the bank, hurting your cash flow, or taking out a loan.

Let’s pull this rabbit out of the hat: Use your credit card

You’re probably wondering how you can do all this without draining your cash reserves. You’re likely thinking this means you’ll have to take out a loan to enjoy these benefits, but the solution is much simpler and already in your wallet.

Using a credit card means you can deduct the expense this year, but the money will only leave your account next year. Depending on your card’s billing cycle this could be in January or even February, which means you can harness the tax breaks this year, while the payment can go out of next year’s budget.

What if your vendor doesn’t accept credit cards, you ask?

Even though it’s almost 2023, a huge portion of business-to-business (B2B) transactions is still done by check. According to the Federal Reserve System, a total of $2.2 trillion in commercial checks was collected throughout the country in the third quarter of 2022 alone.

So, if your vendor only accepts checks, we have one word for you: abracadabra! When using a digital accounts payable (AP) service like Melio to handle the bills, for a 2.9% fee, you can pay by credit card and nothing has to change for your vendor. They’ll still get a check or bank transfer—whichever they prefer—and can maintain their existing workflows. Magic, right?

Still, don’t go on a shopping spree

We know we said ‘tis the season to start spending, but this isn’t an invitation to buy random, useless, and expensive things you don’t actually need. So, if you’re still eying that solid gold laptop cover, for example, stop.

What are we suggesting, then? Don’t just try to waste money thinking the tax breaks are worth it. Instead, make large yet sensible purchases that are required for the operation of your business and pay with a credit card to maximize your benefits.

Types of business purchases best done at the end of the year

Eligible transactions can typically mean up to 20% in tax deductions from your business’s net income for 2022—subject to restrictions and limitations, of course. That can be a lot of money, but remember there’s still the 80% you won’t be able to deduct. So, stick to purchases that you’ll have to make in the near future anyway, or that can really accelerate your growth.

Any large purchase that can help your business operate better in the coming year is worth considering, for example:

Equipment and supplies

Stock up now on non-perishables for the year ahead. These can include shipping boxes, envelopes, labels, office supplies, boxes, containers, raw materials, etc.

Freelance contracts

If you work with freelancers and contractors, consider paying them an advance on services you will need next year. This way you’ll secure their services in advance, but enjoy all the perks now.

Printed materials

If that’s relevant to your industry, it’s always good to have marketing brochures, posters, branded stickers, and business cards at hand. Take this as an opportunity to review how much of these items you have left and how much of them you tend to use up in a year, and renew your stock.

Subscriptions and licenses

December is a great time to reevaluate your existing annual subscriptions, cancel those you don’t need, and renew the ones you do. It’s also an opportunity to figure out what else you need and subscribe to new services, accordingly.

Some examples are tech and software services, web domain and hosting, relevant trade publications, and water or coffee deliveries.

Computer hardware and electronics

Whether you’re planning on growing your team by 10% next year or your equipment is just outdated, now may be the time to purchase any equipment needed to support your plans.

This can mean new laptops, printers, screens, phones, modems, etc. This type of equipment is also typically on sale towards the end of the year.

Office furniture

Think waiting room chairs, additional desks, or even some decor to make your team and customers more comfortable.

Tax breaks + card perks = a better way to do business

You don’t need to be a math whizz to understand this equation. If you use your credit card to make large purchases today, you’ll only pay for them next year, but can collect the tax benefits this year. You’ll also get card perks, cashback, and miles on business transactions that would otherwise go unrewarded.

So, sign up for Melio today to make the most of your business’s year-end purchases.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.