Tax Planning Tips for Small Businesses  

By Sheila M. Monachino, CPA, Partner

As your family’s fall festivities start and football season gets underway, it’s easy to push thoughts of tax season to the back burner. But if you’re a business owner, this is the perfect time to start planning for your 2023 taxes. Decisions you make now could be game changers when it comes to reducing your tax burden by year’s end. 

Comb Through Your Year-to-Date Financials 

Now is an ideal checkpoint for the first half of the year. That includes analyzing your balance sheet, cash flow trends, and profit and loss statements across all your business lines. You’ll probably see where you should adjust expenses, revenue projections, and estimated tax payments. This way, you can make fully informed tax decisions. 

Invest in Your Business Sooner Than Later 

If you’re planning on making deductible purchases in the future, you may want to move them to the current tax year. This might mean buying essential equipment, supplies, software, office needs or even prepaying certain expenses that you’ll incur soon. By doing so, you’ll potentially reduce your overall tax liability. 

Take Advantage of 2023 Tax Credits 

It’s not too late to read up on tax credits your business may qualify for – on a federal, state and local level. They may be related to hiring, investing in research and development, promoting energy efficiency with your workspace or vehicle, and more. These credits can directly reduce your tax liability.  However, these credits often come with paperwork and time limits, so don’t delay. 

Make the Most of Retirement Contributions 

Ensure you’re contributing enough to your retirement plans, like an IRA or 401(k), to maximize your tax advantage. These contributions could help with this year’s tax liability and your retirement decades from now. 

Or if you don’t offer a retirement plan and have less than 50 employees, now may be a good time to start one. Small businesses with 50 or fewer employees are eligible for a tax credit covering the entire expense of initiating a retirement plan, capped at $5,000.  

Plus, you can get 50% credit for employer contributions to each employee’s plan, up to the greater of $500 or the lesser of $250 multiplied by the number of plan-eligible Non-Highly Compensated Employees. 

Plan for Charitable Contributions 

Monetary and property donations to qualified nonprofit organizations (not individuals) are tax deductible. Usually, these organizations have a 501(c)(3) status, and we recommend using the IRS search tool to check for nonprofit eligibility. Also, keep in mind there are limits on how much you can deduct based on a percentage of your adjusted income. 

Overall, donating to causes that represent your company values can be a win-win. 

That said, there are limits to deductibility under the new tax law. When the contributions flow to personal returns, you must itemize the deduction, or it will be lost. In addition, charitable deductions can’t be taken at the corporate level unless the entity is a C Corporation. 

Don’t Neglect Estimated Tax Payments 

With the third quarter deadline looming in September, it’s time to reassess your income projections and ensure you’re on track with your estimated tax payments. Not paying sufficient estimated taxes could result in penalties and interest, so staying ahead is key. 

Consult a Tax Professional 

The IRS is always changing rules around what can be deducted, credits, how retirement plans should be structured, and so forth. All these rules can be complicated. Rather than spending hours doing the research on your own, we can work together to create an end-of-year tax strategy that aligns with your business goals. 

Contact our team at Davie Kaplan to get ahead of the tax season and make sure you keep more of what you earn.