Being proactive about your business finances is essential. This is especially important considering the current challenges facing the US economy. Reviewing the year gone by can help you learn from difficulties and set your business up for better agility in the future.
Thinking ahead can protect you from waiting until there may be too little time to do things in a cost-effective manner. It can also help your business develop damage-control protocols and strategies. These year-end tax planning tips can help you get the ball rolling on putting effective strategies in place.
1. Investigate and understand qualified tax deductions
When planning your year ahead, your business needs to understand the qualified tax deductions for your entity structure and business type.
The IRS defines qualified deductible expenses as Ordinary and Necessary expenses that are incurred in the carrying on of your business. CPAs commonly think of Ordinary expenses as those that are helping to further the growth and sustainability of your venture. Different industries and entity types are eligible for different types of tax deductions and credits. Sit with your accountant at the end of the year to establish where you may have missed an opportunity for tax relief. You may be eligible for deductions and tax credits that student loans tax credits, credits for charitable contributions, and many more.
Understanding the bounds within which your business may deduct expenses is an important step in your year planning. It can help save you time and money in the new tax year. Consult with your CPA to ensure that your current business structure is still the most tax-efficient for your situation.
2. Understand multi-state and residency taxes
If your business operates in more than one state or you travel for business frequently, you may be subject to multi-state or residency taxes. Understanding state apportionment tax requirements and residency tax rules is an imperative part of your annual tax planning. It aids to ensure compliance and could save your business from double taxation or tax penalties.
3. Consider your investment strategy
When your business is profitable, your tax liability to the Federal and State governments should be paid timeously. Your business should avoid paying massive amounts in penalties for late or incorrect tax filing. This brings us to an important year-planning strategy around investment: don’t reinvest every dime you make as this can lead to cash flow problems when there is an economic downturn.
4. Review asset depreciation
Consider taking advantage of depreciation deductions for new asset purchases.
Asset depreciation allows businesses to spread the cost of an asset over its useful life. Which, essentially reduces taxable income each year. With asset depreciation, instead of quoting the full amount of an asset to the IRS in one year, you stagger the amount over its period of use. In the eyes of the taxman, it looks like the company is incurring a cost over time rather than all at once. This method can lead to lower tax payments to give your business some breathing room financially.
5. Defer income
Deferring income is like playing the strategic waiting game with uncle Sam. Choosing to defer income means that your business’s taxable income for the current year decreases. Which means that you can potentially reduce the current taxable income of your business to enjoy some tax savings. Discuss the possibility and viability of this with your CPA.
6. Plan tax submissions
Effective tax preparation for businesses is a year-round endeavor that involves meticulous record-keeping. If you haven’t already, it is advisable to collaborate with a CPA to aid you prepare your taxes. They can help you optimize deductions and remain compliant as you navigate complex regulations and multi-state tax duties.
The following IRS tax dates should be diarized for Partnerships (including LLCs), C Corps (Form 1120), and S Corps (Form 1120S):
- January 15, 2024: 2023 fourth quarter estimated taxes due.
- January 23, 2024: 2023 Tax season begins.
- March 15, 2024: Taxes are due for some business types. (partnerships, multi-member LLCs, and S-Corporations).
Businesses organized as partnerships (that run per the calendar year), including multi-member LLCs, and S-Corporations need to file Form 1065, or 1120S by March 15, 2024. Fiscal year businesses, must file by the 15th day of the third month following the end of your specific tax year.
- April 15, 2024: Taxes for C-Corporations are due. Businesses organized as C-Corporations need to file form 1120 by April 15, 2024, if they are a calendar year business.
For fiscal year businesses it is due by the 15th day of the third month following the end of your specific tax year.
- September 16, 2024: Extended partnership and S-corporation returns due.
- October 15, 2024: Extended C-corporation returns due.
* Please consult with your CPA to verify these tax deadlines for your business and to confirm whether any other tax dates apply for you.
7. Set up a separate checking account for your tax budget
Once your business has established its estimated tax liability, it is recommended that you move those funds into a separate account. That way, your business will have the necessary cash flow available when it comes to submitting tax payments. Essentially it helps to safeguard the money due to the IRS from being used in unforeseen circumstances.
At Fusion our CPAs are qualified to help small and large enterprises prepare annual tax returns and analyze recon statements. We can help you set up your accounting software and chart of accounts. It is our aim to help you better understand your business finances as you prepare for the tax year ahead. Contact us today.
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This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.