As the year comes to a close, there’s often a race to the finish line—wrapping up to-do lists before the new year, using vacation time that is set to expire and setting the stage for a productive return to the office in January. In the midst of the holiday season, certain tasks get pushed into the new year. But for business owners and entrepreneurs, there are some things that just can’t wait until 2024.
Year-end tax planning is one task that should be at the top of every business owner’s to-do list, because when it comes to tax mitigation strategies, time is of the essence. Once key dates and time frames pass, any tax benefits are lost.
Before you say goodbye to 2023 and dive into the new year, consider these tax planning strategies:
Maximize the Qualified Business Income Deduction (QBI)
If you own a flow-through entity (a partnership, Schedule C Business, rental property) you may qualify for the QBI deduction, a deduction of up to 20% of qualified business income. Your adjusted gross income (AGI), the W2 wages paid by the company and depreciable assets all play a factor in calculating this deduction. A tentative QBI calculation should be performed before year end to determine if any of these factors can be adjusted to maximize the deduction.
Switching to the Cash Method of Accounting
More small businesses are eligible to use the cash method of accounting (as opposed to the accrual method) than were allowed in earlier years. Cash method taxpayers may find it easier to shift income between years to impact their tax bill. This change must be requested from the IRS before the original due date of the tax return for the year of change. That means this strategy should be on your radar now.
Increase your Depreciation Expense
Businesses should consider making expenditures that qualify for the liberalized business property expensing option. Many businesses that make timely purchases will be able to deduct most, if not all, of their outlays for machinery and equipment in 2023. To take advantage, purchases of assets would need to be completed before year end.
Expense Rather than Depreciate
Businesses may be able to take advantage of the de minimis safe harbor election to expense the costs of certain assets, materials and supplies. This accelerates expenses into 2023 rather than spreading the expense over many years. The safe harbor is elected with the 2023 business tax filing.
Utilizing Net Operating Loss (NOL)
If a C corporation is anticipating a 2023 net operating loss (NOL) and a substantial net income in the following year, there may be a planning opportunity. Consider accelerating some of next year’s income to absorb all or part of the 2023 NOL to reduce current year income and 2024 estimated tax payments.
Time the Expense of Bonuses
Year-end bonuses can be timed for maximum tax effect, depending on whether you desire an income reduction in 2023 or 2024 and whether your business is cash basis or accrual basis. To take advantage, you’ll need to think ahead, as this strategy should be implemented by year end.
A Shared Mindset for Growth – Get in Touch with Us
End-of-year tax planning means that you’ll have the option to harness the full range of tax mitigation strategies available to your business. For more information on how our tax advisors can guide you through end-of-year tax planning, contact us here or call us at 561.453.1441.
If you have any friends or associates who might benefit from a complimentary consultation please fill out our referral form here.
LEGAL OR TAX: The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.