Maximize Your Year-End Tax Deductions: A Guide for Government Contractors

Now that December is here, it’s time to start thinking about the end of the calendar year and what that means for your business. For many businesses, that means tax deductions – so it’s a good time to invest in things that will benefit your business in the future.

This could be anything from accelerating operating expense payments to additional marketing and business development expenses prior to year-end in preparation for the new year. Whatever you do, make sure you get everything squared away before December 31 so you can maximize your deductions on your tax return — they can save you a lot of money come tax season!

When it comes to tax deductions for government contractors, there are a few things you should to know. First, any expenses related to registrations, certifications, marketing, business development, and bid or proposal preparation are tax deductible. Second, costs incurred during the performance of the contract are also tax deductible. This includes things like salaries, rent, and materials. Finally, consider things like depreciation on equipment or if you will be impacted by capital gains on  property sold.

So, if you’re a government contractor, make sure you take advantage of all the tax deductions available to you. You should also consider utilizing an outside accountant as your tax partner to help you navigate year-end deductions. It could mean a difference in your cash flow or between a profitable year and a loss.

A tax deduction is an allowable expense that can be subtracted from your taxable income, making your tax liability lower. The lower your taxable income, the lower your tax bill. You can claim a tax deduction for many different expenses, including business expenses, charitable donations, government registration expenses, marketing, and life insurance premiums as examples. You can also claim a tax deduction for certain types of interest, such as on a business loan, credit card interest or mortgage interest.

By expensing the cost to get registered to do business with the government and establishing a set-aside certification or GSA Schedule before December 31, you can lower your taxable income for 2022 and thereby decrease your year-end taxes. 

What are your plans to grow your federal contracting business in 2023? Do you know your Government Readiness Level?

How can you qualify for a federal set-aside or sole-source contract?

You may qualify for a federal set-aside or sole-source contract if you are certified under a special socio-economic designation, as the federal government sets aside 23% of all contracting dollars for small businesses, amounting to approximately $154 billion last year. The SBA actively works to expand small business opportunities and ensures that a fair percentage of federal spending flows through set-aside awards specifically for Certified Socio-Economic qualified small businesses, leveraging the government’s purchasing power.

In December 2021, the federal government issued a policy memorandum in an attempt to reverse the decline in the small businesses participating in federal contracting, and to actively track recent entrants to ensure that new small businesses contractors are entering and then finding opportunities in the federal marketplace. 

The SBA continues to collaborate with federal agencies to expand small business opportunities for contractors to compete and win federal contracts. The SBA provides oversight in federal contracting to ensure that government-wide goals for small business utilization are achieved every year.

By leveraging the federal government’s purchasing power, the SBA works with small businesses so that a fair percentage of federal spending flows through set-aside awards specifically for Certified Socio-Economic qualified small businesses.

Who is eligible for a GSA Schedule and what are its benefits?

If you are a government contractor, you are eligible to take advantage of a GSA Schedule, which is a five-year government contract providing for the purchase of goods and services by federal agencies at a pre-determined price and terms. Last year, the average dollar value of annual awards for a GSA holder was approximately $2.9 million, demonstrating a significant benefit. FedBiz Access can assist you in getting involved in the federal contracting marketplace by offering tools to register, find opportunities, and win contracts, and our services are tax deductible, allowing for a deduction this year.

Looking to get involved in the federal contracting marketplace? FedBiz Access can help. We offer a range of tools to make it easy for you to register, find opportunities, and win contracts. Plus, we provide support all along the way. And because you can expense our services, you can take a tax deduction this year by investing in the future of your business. So why not give us a try? We’re confident you’ll find our services invaluable.