Navigating year-end planning for businesses

Businesses face the crucial task of year-end tax planning, a strategic endeavor that can significantly influence financial outcomes. Amid evolving tax laws and incentives, understanding available options and compliance requirements is key. This guide highlights essential considerations for businesses.

Retirement plans boost for small businesses 

The SECURE 2.0 Act enriches incentives for smaller employers to establish retirement plans. From 2023, businesses with 50 or fewer employees can claim 100% of startup costs, coupled with an additional credit for contributions during a plan’s first five years, fostering a culture of savings and financial security among the workforce.

Employee Retention Credits still in play 

Although the employment period eligible for the Employee Retention Credit has ended, businesses can still retroactively claim this credit for wages paid during the pandemic until statutory deadlines in 2024 and 2025. Given the complexity and evolving criteria for eligibility, consulting with a tax professional is advisable, especially in light of recent IRS actions to curb fraudulent claims.

Capitalize on depreciation opportunities 

The generous depreciation and expensing limits set by the Tax Cuts and Jobs Act remain beneficial. With the investment limit at $2.89 million and a dollar limitation of $1.16 million for 2023, businesses are encouraged to invest in machinery and equipment and take advantage of Section 179 depreciation, which allows for a full write-off of eligible assets. In addition, Section 168(k) Bonus Depreciation, which provides for accelerated depreciation, is also available.

Accelerating depreciation and making purchases

Using Section 179 and Bonus Depreciation allows businesses to write off purchases of equipment and vehicles swiftly. Planning purchases to align with these provisions can reduce taxable income substantially.

Clean commercial vehicles credit 

The Inflation Reduction Act introduces an up to $7,500 credit for purchasing clean commercial vehicles post-2022, aligning business investments with environmental sustainability and potentially yielding significant tax savings.

Strategic timing of income and deductions 

Businesses, especially those using the cash accounting method, can influence their tax liability through the timing of income and deductions. Deferring income to future periods with expected lower tax rates or accelerating deductions into the current year can optimize tax outcomes. 

Capturing all business deductions 

Ensuring all eligible deductions are claimed, including often-overlooked ones such as home office expenses, is crucial. Implementing an accountable plan can aid in maintaining proper records and maximizing deductions for employee reimbursements.

Leveraging tax credits 

A myriad of tax credits, from small business health insurance premiums, work opportunity tax credits, and research and development credits, are available. Tax advisors should be proactively looking to add value to their clients to reduce their tax liabilities.

Adapting to new tax legislation 

The Inflation Reduction Act’s introduction of a 15% alternative minimum tax for large corporations and a 1% excise tax on certain stock repurchases necessitates careful planning. Understanding these new laws is vital for compliance and strategic financial planning. Businesses are urged to review their tax strategies so they can leverage available credits and deductions while preparing for upcoming legislative changes. Consulting with tax professionals can provide tailored advice, ensuring businesses not only comply with current regulations but also position themselves advantageously for the future.

Call to action 

Year-end tax planning is more than a compliance exercise; it’s a strategic opportunity to strengthen your clients’ business financial health. To ensure no opportunity is left on the table, it’s imperative to start implementing these strategies well before the end of the year.