Businesses usually want to delay recognition of taxable income into future years and accelerate deductions into the current year. But when is it wise to do the opposite? And why would you want to?

Several advantageous provisions from the Tax Cuts and Jobs Act of 2017 are scheduled to expire for tax years starting after December 31, 2025. These changes include an increase in individual income tax rates to pre-2017 levels, repeal of Section 199A Qualified Business Income Deduction, and lowering of the standard deduction. In addition, there have been discussions in Washington regarding the increase of corporate tax rates.

If you believe your business income could be subject to tax rate increases, you might want to accelerate income recognition into the current tax year to benefit from the current lower tax rates. At the same time, you may want to postpone deductions into a later tax year, when rates are higher and the deductions will be more beneficial.

To accelerate income
To postpone deductions

Manager, Mitchell Erickson, CPA provides key takeaways:

  • Strategic Timing of Income and Expenses
    Timing the receipt of income and the payment of expenses can be a powerful tool in managing taxable income. By deferring income or accelerating expenses, businesses can potentially reduce their tax liability.
  • Utilizing Tax Credits
    Taking advantage of available tax credits can significantly reduce a business’s tax bill. Credits such as the Research and Development (R&D) tax credit and energy-efficient property credits are valuable and should be explored.
  • Effective Depreciation Methods
    Implementing effective depreciation strategies, including Section 179 expensing and bonus depreciation, can maximize deductions and improve cash flow by allowing businesses to deduct the cost of assets more quickly.

Contact your CDS experts at (888) 388-1040 to discuss the best tax planning actions in the light of your business’s unique tax situation.