Year-End
Tax Planning 2022:
Top Tips for Businesses
Can your client 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 businesses of all sizes.
1. Accelerate income? Depending on 2022 income and projected 2023 income, this is an option that can a major difference in a tax bill. Each situation is different, so have your client talk to a CPA (i.e., it might make sense to defer income).
2. Defer or accelerate expenditures? Again, depending on the situation, consider either deferring or accelerating expenses. If a business is having a bad year in 2022 but expects a much better 2023, consider delaying the payment of expenses, especially if tax rates go up.
It is important to note that by choosing to accelerate expenses into 2022, this pattern will need to continue 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 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 the geographic area. Since many businesses offer year-end discounts, it may be cheaper to buy before December 31st than after January 1st. If there will be business travel that is necessary, book 2023 flights, hotels and rental cars. Use credit cards or bank line of credit, then pay those off on January 1st (however, consider the financial institution’s billing cycle and any interest expense policies). For 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 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, it may be possible to start or add to retirement plans. Consider deducting 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 made in 2022 could end-up hurting a tax position in 2023, so plan for several years (e.g., if too much is paid in one year, this may cause climbing into a higher bracket and paying more tax). Especially if a 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!