Can you afford to NOT take time to save on taxes?
Smart business owners
realize that year-end adjustments for tax purposes can save LOTS of
money! As we approach the end of 2022, let's look at some key
tax minimization strategies for your business.
1.
Accelerate income? Depending
on your 2022 income and projected 2023 income, this is an option that
can a major difference in your tax bill. Each situation is different,
so talk to your CPA (i.e., it might make sense to defer income).
2. Defer
or accelerate expenditures? Again,
depending on your situation, consider either deferring or accelerating
expenses. If your business is having a bad year in 2022 but you expect
a much better 2023, consider delaying the payment of your expenses,
especially if tax rates go up.
It is important to
note that by choosing to accelerate expenses into 2022, you will need
to continue that pattern at the end of 2023, or there will likely be a
bump in taxable income in 2023. This should be part of a strategic tax
plan, projecting income and expenses for both the current year and
following year and determining how to best minimize taxation.
If you are
accelerating expenses to 2022, here are some items to consider:
- Rent
- Insurance
- Employee
bonuses (bonuses to owners and/or related parties have additional
rules)
- Utilities
(phone, water and electrical)
- Repairs
and maintenance for office equipment
- Office
supplies
- Annual
memberships
- Computer
repairs/upgrades
- Travel
expenses
- Advertising
- Vehicle
expenses
- Dues
and subscriptions
- Postage,
Fax and Delivery
- Professional
fees
Some
specific tips: Consider year-end
bonuses to worthy employees, especially to keep them happy if the
recruiting market is slim in your area. Since many businesses offer
year-end discounts, you may find that it is cheaper to buy before
December 31st than after January 1st. If you have business travel that
is necessary, book your 2023 flights, hotels and rental cars. Use your
credit card or your bank line of credit, then pay those off on January
1st (however, consider your financial institution's billing cycle and
any interest expense policies). For your sales staff, all reimbursable
expenses need to be submitted to accounting so that the payment is made
in the current year.
3.
Purchase equipment. If you're
planning on buying equipment, consider doing it before the end of the year
to take advantage of the Section 179 expense deduction (rather than
requiring the property to be capitalized and depreciated). This
property is generally limited to tangible, depreciable, personal
property which is acquired for use in the active conduct of a trade or
business. Note that equipment must be "placed in service,"
not just ordered and/or deposit paid.
4.
Review retirement plan options. Depending on the type of plan, you may be able to start
or add to your retirement plans. You can also deduct set-up and
administrative costs (including legal and accounting fees, and any
expense related to educating employees about the plans) for retirement
plans. In most cases, if the retirement plan is set up before the end
of the year, the business can deduct the pension contribution in 2022
even though it is not paid until the due date of the tax return.
5.
Develop a multi-year horizon. Some tax moves that you make in 2022 could end-up hurting
you in 2023, so plan for several years (e.g., if you put too much in
one year, you might be climbing into a higher bracket and paying more
tax). Especially if your business is considering expansion, relocation
or some other major change, it is important to look at the long-term
tax ramifications.
PREPARE
FOR TODAY & TOMORROW!
2023 is fast
approaching and the tax professionals at MyCFO can
offer invaluable expertise. Learn
more about our Tax Planning services and contact
us today for a free initial consultation!
