By now, you should have submitted your 2022 tax year documents for preparation and filing (and your tax accountant has already asked for an extension until October, a widespread practice across many industries). But taxes cannot be a part-time focus for you. The time to prepare for next year’s taxes is right now. Here are several steps you can take during the remainder of 2023 to make sure you maximize tax savings while remaining in compliance with tax laws and regulations.
- The most important action you can take is to meet with your tax advisor to review your 2023 budget. They will be able to identify and suggest ways to make your business more tax efficient.
- Review your company’s entity type and determine whether a change of entity would be beneficial in light of recent tax changes.
- Conduct a review of employee benefits. Are there additional benefits you can offer to make your company a more attractive employer while also reaping tax advantages? One option that could be beneficial — and would be welcome considering the current inflationary conditions — is a one-time profit share for all employees to help reduce tax obligation.
- Review your capital assets budget for 2023 to discuss how to gain the most depreciation. Plan purchases with tax consequences in mind so that you can make the best choice between depreciation and expensing.
- You can use IRS Section 179 to fully expense equipment purchases (up to a certain limit). In 2022, the Section 179 limits are $1.08 million, and the full deduction can be taken unless equipment purchases are greater than $2.7 million for the tax year in which the deduction is being claimed. If the purchases exceed $2.7 million, the deduction reduces dollar-for-dollar. For the 2023 tax year, those limits increase to $1.16 million and $2.89 million.
- Many propane companies have taken advantage of bonus depreciation over the past several years to expense equipment purchases 100% during the year they were made. Starting in 2023, the bonus depreciation will be phased out, and only 80% of the purchase cost can be expensed, while the remaining 20% must be amortized.
- Take advantage of available tax credits. The research and development (R&D) tax credit has been eliminated (maybe!), but others are out there. If you have not taken an Employee Retention Credit for 2020 and the first two quarters of 2021, there is still time to determine eligibility and apply for credits of up to $26,000 per employee.
- Keep more accurate records. Upgrade your accounting and financial management software so that you can streamline data entry and gain access to more accurate information on a timely basis.
- Look for opportunities to make a corporate charitable donation. This might not only help lessen your tax burden but would raise your profile and burnish your image in the community.
- Maximize your personal retirement contributions. If you are self-employed and have a Keogh plan, you can contribute up to $61,000 in pre-tax income. For Roth IRAs and traditional IRAs, the 2023 contribution limit has been raised to $6,500 (up from $6,000).
- Write down bad debts and old inventory. Bad debts that are likely to be uncollectible can be written off using a direct write-off method or provision method. An inventory write-down reduces the book value of inventory to improve the income statement and balance sheet of a business.
Taxes are a fact of life when running a business. But being strategic about planning purchases and alert to ways of reducing your tax obligation can lead to paying less money to the government and keeping more for your business.