Essential Year-End Tax Planning Strategies for Small Businesses
Introduction to Year-End Tax Planning
Year-end tax planning isn’t just a routine task for small businesses—it’s a strategic opportunity to maximize tax savings and comply with the latest tax laws. Here’s a detailed guide on essential tax-saving moves every small business in Oak Brook should consider as 2023 draws to a close.
1. Maximize Depreciation Deductions
Take advantage of enhanced first-year depreciation deductions under the Tax Cuts and Jobs Act (TCJA). Equipment placed in service by December 31, 2023, qualifies for Section 179 deduction up to $1.16 million and 80% bonus depreciation.
2. Establish a New Retirement Plan
Under SECURE 2.0, small businesses can benefit from a 100% tax credit for the first three years on employer contributions to new retirement plans, starting 2023.
3. Manage Business Interest Expense
Ensure compliance with the TCJA’s 30% limit on net interest expenses, exempting qualified small businesses with average annual gross receipts under $29 million.
4. Deduct Startup Expenses
Launch a new venture before 2024 to claim up to $5,000 in deductible startup expenses, with phased reductions above $50,000 in cumulative costs.
5. Consider Cash-Method Accounting
Evaluate eligibility to switch from accrual to cash-method accounting, particularly beneficial for C corporations with average annual receipts under $29 million.
6. Optimize Building Repairs
Deduct minor repairs to business premises immediately, while capitalizing major improvements under IRS guidelines for nonresidential buildings.
7. Leverage Business Vehicle Depreciation
Take advantage of increased first-year depreciation limits and bonus depreciation for new business vehicles placed in service in 2023.
8. Claim Research and Development Credits
Explore tax credits for research and development (R&D) expenses, including options for startups under simplified R&D credit rules.
9. Issue Qualified Small Business Stock
Consider issuing qualified small business stock (QSBS) to potentially exclude taxable gains on future sales, subject to specific requirements.
10. Utilize Work Opportunity Tax Credit (WOTC)
During the holiday season, utilize WOTC for hiring employees from targeted disadvantaged groups, with credits up to $9,600 per employee.
Implement these strategic tax-saving moves with guidance from a tax professional to optimize your small business’s financial position as the year comes to a close.