Now that the election is over, it looks like we will have divided government in Washington for the next couple years. What this normally means is that there will not be a lot of large tax changes. That being said, let’s talk about some tax planning ideas for the end to the year from a business point of view.
Then 2023 will be similar to 2022 from a tax point of view?
- That is right for the most part. One exception would be bonus depreciation.
- We have been used to 100% bonus depreciation which means that, in general, a business can expense an asset in full in the year of purchase.
- For 2023, the bonus depreciation goes down to 80%. It then decreases in future years until it is gone.
- Now this may change with some year-end legislation, but these are the rules for now.
Would the recommendation be to buy equipment this year?
- If a business is looking for deductions this year, then I would say yes.
- But my caveat is only buy the asset if you need it for your business. If this asset would be nice to have, but you don’t need it, then you may want to wait.
- The business should do an analysis of the cost to buy vs the cost to rent.
What else can be done?
- If you are a cash basis business, which many are, then they can defer income and accelerate deductions.
- This means paying some expenses that would normally be paid in January early. Pay those in December.
- This will not work for accrual based businesses as they pick up income and deductions when incurred, not when paid.
We talk a lot about retirement plans, can anything be done here?
- Yes, this is an area where you can also make a real difference.
- As a business owner, if you are not maximizing your retirement plan contribution, this can be done.
- What a business owner can do is take a bonus before the end of the year and have the majority of that bonus go into the 401(k), SIMPLE or other retirement plans.
- For most business expenses you need to spend a dollar to get a deduction, but with retirement plans, it is like moving the money from one pocket to another.
Anything else about Business Tax Planning for 2022?
- This will affect only a small amount of businesses, but over the last year or so, many passthrough business such as partnerships and s-corporations have been paying their shareholders tax at the entity level rather than the individual level to get a state income tax deduction.
- This is a complex issue so you will want to discuss this with your CPA or accountant.
Be sure to talk to one of our professionals if you have any questions regarding business tax planning for 2022.
As a partner, I have thorough experience providing tax services to individuals, privately held businesses, nonprofit entities and estates and trusts. I also provide compilation and review services.
