Cash-basis taxpayers can benefit from the IRS’s safe-harbor rule, which allows you to prepay and deduct qualifying business expenses up to 12 months in advance. By following this guideline, you could secure a deduction for prepayments made this year, while your landlord or other service provider reports the income in the following year.

For example, if you prepay $36,000 in office rent on December 31, 2024, covering all of 2025, you can deduct the $36,000 in 2024. This timing ensures you get the deduction now, while your landlord reports the income in 2025.

Important Tips:

• Timing Is Key: Your prepayments must not extend beyond 12 months, and they should not go into 2026 if paid in 2024.
• Clear Communication: Let your landlord know your plans to ensure they process the check in line with your tax strategy.
• Documentation: Use USPS tracking, certified mail, or registered mail to have proof of mailing and delivery dates for your records.

This strategy can provide significant tax savings, but be mindful to report the transaction correctly.

This Tax Tip was provided by Eric Joern with Kaizen CPAs + Advisors

Since 1964, Kaizen CPAs + Advisors has been committed to helping businesses maximize their profit potential and achieve long-term growth. Kaizen CPAs + Advisors operates as a trusted partner, offering CFO-level insight to support informed decision-making and business management, backed by robust information technology and a proactive approach. From tax strategy to cash flow management, Kaizen provides the tools and expertise to support small business owners at every stage of their journey, empowering them to focus on growth and success. Recognizing the unique needs of small businesses, Kaizen’s services are designed to bring the benefits of corporate-level financial strategy to companies of all sizes.

Learn more about how Kaizen CPAs + Advisors help business owners sleep easier knowing their financials are in trusted hands at kaizencpas.com