2023 Year-End Planning for Businesses
2023 Year-End Planning for Businesses
Before the end of the tax year, you may consider the following actions as a means of reducing your exposure to income taxes for the current year from your business activity. Not all will apply to you, but many may. Please contact us to discuss the potential benefit and your eligibility before taking action.
- Begin by reviewing your business’s financial statements, profit and loss statement, and balance sheet for the year. Assess your current financial position to identify areas that may require attention.
- If you have a projected loss, before any further planning, consider your basis and/or your ability to deduct these losses in the current year. This may be complex depending on your entity structure, source of the loss, and amount of the projected loss.
- If you have projected taxable profits, consider the items below.
- Evaluate any additional states or local jurisdictions for potential income tax exposure. If you hired new staff, acquired tangible or intangible property, or on boarded a new customer in another state, consideration must be given to potential filing and tax payment requirements in those other jurisdictions. Many factors apply and each jurisdiction could measure the obligation to file and/or pay tax differently.
- Resident and nonresident state pass-through withholding or composite tax elections (partnerships or S corporations). Consider having an eligible business make an election to pay an entity level state and/or local income tax obligation before the end of the year to create a deduction against federal taxable income and pass on any applicable income tax credit for eligible members, partners, or shareholders of the entity.
- Reminder: Paying entity level taxes may avoid the $10,000 state and local tax deductibility limitation individual taxpayers are subject to.
- Reminder: Estimated tax payments may be required in order to avoid underpayment payments.
- Defer Income and Accelerate Deductions: Consider deferring income into a subsequent year while concurrently accelerating deductions to reduce your taxable income for the current year. This may include paying already anticipated costs in the subsequent year, where feasible. Accrue necessary and known expenses including employee bonuses payable early in the subsequent year. Evaluate your inventory or other capitalized assets to identify any obsolete or disposed of items that may be written off.
- Change in your method of accounting: Some businesses can voluntarily elect to change their method of accounting overall or choose some other method of accounting for specific tax attributes (i.e. inventory). In general, the change is retroactive to the first day of the tax year and if resulting in a negative adjustment, deductible entirely in the year of change.
- Remain an Eligible Small Business Taxpayer. In general, entities with annual gross receipts of less than $29,000,000 may be eligible for simplified accounting rules (cash method of accounting, no limitation on business interest expenses, and others). If revenues are near or exceed this amount, consideration may be needed to evaluate how the applicable tax provisions may impact tax cost, and opportunities to avoid these limitations on deductible expenses and compliance costs.
- New capitalized assets and accelerated depreciation: Determine whether it’s beneficial to take advantage of bonus or Section 179 depreciation deductions for any capitalized asset purchases.
- Retirement and other Fringe Benefits: Review and optimize employee benefit plans. Ensure that you are maximizing contributions to retirement plans, health savings accounts (HSAs), and other tax-advantaged accounts on behalf of key employees and other staff. Consider any year-end bonuses or profit-sharing contributions.
- Charitable Contributions: If your business makes charitable contributions, consider making year-end donations to eligible organizations. These contributions may be deductible and can support causes important to your business.
- Research, Development, and other Tax Credits: If applicable, explore opportunities for Research and Development (R&D) as well as other income tax credits. Examples may include Work Opportunity Tax Credit or energy improvement related credits.
- Estimated Tax Payments: Ensure that your estimated tax payments for the year are up to date. Underpayment of estimated taxes can result in increasingly costly penalties and interest.
- Analyze Business Structure: Assess whether your current business structure (e.g., sole proprietorship, partnership, S corporation, C corporation) remains the most tax-efficient choice for your circumstances. Changes in your business’s size, owners, or profitability may warrant a reevaluation.
Always remember to retain documentation to support income and deductions. Ensure that you maintain accurate records and receipts for reportable activity.
Finally, we encourage you to schedule a year-end consultation to discuss your specific tax situation. We can perform a comprehensive review and tailor a tax strategy that aligns with your business goals. Remember that tax laws and regulations are subject to change, so it’s essential to stay informed about any new developments that may impact your tax planning.
We are committed to assisting you in making informed decisions to minimize your tax liability while maximizing your business’s financial health. Please do not hesitate to contact us to schedule your year-end tax planning consultation.
Subsequent changes in tax law, code, regulations, regulatory guidance, or other precedent may affect the statements above and must be reviewed with your tax advisor before taking any action. Careful consideration and an accurate analysis of the income tax implications of any potential action is highly advised.