Year-End Tax Planning 2023 – REFS

Have your customers considered these strategies?

It isn’t too late for your customers to take advantage of tax minimization strategies for business and personal scenarios. Here are a few tips to pass on to them:

BUSINESS: 

• Compliance with bank loan requirements – Before you make any year-end disbursements (such as Section 179 purchases and optional bonuses), be certain that you will still be in compliance with your bank loan covenants and conditions. Work with your CPA to run some calculations.
• Profit sharing contributions– ERISA laws require compliance within profit sharing plans.  If you are planning an end of year owner contribution, make sure to maintain the appropriate owner vs employee split (i.e., in order to give employees the same percentage).
• Short on estimated taxes? – Haven’t talked to your CPA all year? If your 2023 income is substantially higher than projected, you need to make a move to avoid an IRS or State underpayment penalty.  This penalty is essentially additional taxation, why pay it?  Instead, increase withholding for December or submit an estimated tax payment.
• 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.
• Defer or accelerate expenditures? Depending on your situation, consider either deferring or accelerating expenses.

PERSONAL:

• Roth vs 401k – Did you know that a lot of 401(k) plans have a Roth IRA option, with no income limit? In this case, you can still do Roth IRA contributions no matter the income level income.  There are also several other innovation strategies for using Roth IRAs, including some newer options due to the Secure Act 2.0, so contact your CPA.
• Deferred bonus – If you are on a commission and/or bonus program with your employer, did you have an exceptional 2023? If yes, consider asking your employer to defer the bonus until 2024.  Or accelerate if expecting higher income next year.
• Sale of rental property – When it comes to selling rental properties (any class of rental property – residential, commercial, industrial), many people are afraid of capital gains taxes on the increased value of the property held over perhaps decades. In addition, the new “Net Investment Income Tax” applies a 3.8% surtax on these sales.  If a 1031 exchange is not an option in your situation, what can you do?  In any given year, if you have high personal income and also have rental losses, those losses carry over to another year.  However, when the property is sold those previous rental losses (which in some cases can be many years) are “released,” in that you can offset the capital gains from the sale by deducting all of those losses.  If you have sold a rental property in 2023, or are contemplating doing so in 2024, contact your CPA to discuss strategies to manage your taxation.

SAVE MONEY ON TAXES!

Each situation is different, so have your customers contact MyCFO to make all the right moves. Contact us today for a free initial consultation!