Small-Business Tax Planning for the Coming Increased Taxes

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Small businesses can save a lot of money if they take time to plan how they can reduce their taxes. Waiting until the end of the year to discover which tax credits or tax deductions you can get is too late. Most likely, you will wish you knew about some new deductions before the year ended.

Taxes for many businesses are going to increase considerably in 2023. President Joe Biden has revealed that his budget for 2024 calls for a hike of $4.7 trillion. The U.S. Ways and Means Committee announced that owner-operated small businesses are expected to provide $650 billion of that tax increase; $235 billion will come from partnerships, LLCs, and “S” corporations; and about 1 million “C” corporations will have their taxes increased by about 33 percent.

Your Business Needs Strategic Tax Planning Now

Strategic tax planning enables you to discover what new taxes are available, as well as already existing ones, so that you can maximize tax deductions and get the most benefit when tax time rolls around. It will require being alert to new taxes and the annual changes in the tax codes.

Detailed Records Are Necessary

Getting the most deductions and credits requires that you keep precise records. It will also help if you categorize your expenses, which makes it easier to calculate deductions at tax time.

It is not a good idea to count on your certified public accountant (CPA) to find deductions for you. Their training and job technically only involve recording your income and expenses and balancing your books. They often are not caught up on the latest tax breaks your small-business needs.

The Internal Revenue Service (IRS) annually makes changes in the tax requirements and deductions. Small-business owners would probably do better if they stayed informed about the latest tax updates and relayed the information to their accountants.

Tax Credits Available for Businesses

Many tax credits are available for businesses, but a small business may only be able to claim some of them. Among them, you will find credits for things like a qualified Plug-in Electric and Electric Vehicle Credit, the Disabled Access Credit, the Credit for Small Employer Pension Plan Startup Costs, the Credit for Small Employer Health Insurance Premiums, the Employer Credit for Paid Family and Medical Leave, and many more.

Several of these credits are available as part of the General Business Credit, or you may apply for them individually. You can find a list of available credits and the forms you need to use at the IRS website.

Tax Deductions for Small Businesses

Knowing the deductions you are eligible for at the beginning of the year can help you avoid expenses that will not give you the best deductions. Sometimes, simply doing things another way can give you the tax break you want.

Here are some tax breaks your small business may be eligible to claim.

• Retirement Fund

If you are a sole proprietor and have your own retirement savings plan that you invest in each year, it will probably give you one of the biggest tax breaks possible. Contributing the maximum amount allowed each year is likely tax deductible and will reduce your taxes. Some retirement plans accept contributions only on an aftertax basis and will not reduce your taxes now—but there will not be any taxes after you reach 65.

• Health Insurance

Another way to reduce your taxes is to have a tax-deductible health plan. A health savings account (HSA) is one such plan. It must be accompanied by a high-deductible health plan (HDHP). These plans are paid for with pretax money and build interest tax-free.

The money in the account does not expire, and is tax-free when used for medical purposes. After you reach 65, you can use the money for anything without a penalty, making an HSA a good tool to save for retirement—especially if you and your family are in good health.

An HSA can be purchased through the Health Insurance Marketplace or the Small Business Health Options Program (SHOP), as well as through banks. There are contribution limits for 2023: $3,850 for individuals and $7,750 for family coverage.

• Equipment Costs

Businesses that use specialized equipment can get a deduction for it on their taxes. Any supplies needed for its operation is also tax deductible.

• Electronics

Most likely, your office will need some electronics to keep it going. It includes computers, printers, required peripherals, cell phones, etc. They are deductible, but may need to be depreciated over two or more years.

• Supplies

All supplies your business needs to produce its products or operate are also deductible. It includes supplies for your office as well as for manufacturing. Printing and advertising costs are also deductible.

• Other Deductible Expenses

Small businesses can also deduct the cost of buying and operating their vehicles. You can also deduct the cost of travel mileage for business use.

A deduction can also be made for a home office and the costs for that portion of your home, including utilities, insurance, mortgage costs, maintenance, and more. There is a stipulation by the IRS that you must use it often and only for business.

The Work Opportunity Credit (WOTC)

This credit is available to employers who hire people that often have difficulty getting hired. LendingTree says the credit is worth $2,400 when you hire someone that is a veteran, a felon, or if they receive benefits from the Temporary Assistance for Needy Families (TANF) program—or other target groups.

Defer or Accelerate Income

Another strategy to lower your taxes this year could be deferring your taxes until next year. If you did a job for a client in December and have not billed them yet, you might wait until January to send a bill if you expect this year’s taxes to be high. On the other hand, you might accelerate your billing if you expect your taxes to be considerably higher next year.

Efficient tax planning requires knowing what tax credits and tax deductions your business is eligible to claim. It is even possible that using a different business structure may change your taxes this year. Talk to a professional tax lawyer to understand the best approach to save money on your taxes.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.