Fall Tax Planning For Small Businesses cover

Fall Tax Planning For Small Businesses

  • Learn about the QBI deduction.
  • Find out how cash vs. accrual accounting can help your small business.
  • Discover information about the Section 179 deduction.
  • Learn how to take advantage of bonus depreciation.

Now that we’re entering the fall season, it’s a good time to start thinking about making moves that may help lower your small business taxes for this year and next. The standard year-end tax planning approach of deferring income and accelerating deductions to minimize taxes will likely produce the best results for most businesses. Also, consider bunching deductible expenses into this year or next to maximize their tax value.

If you expect to be in a higher tax bracket next year, opposite strategies may produce better results. For example, you may be able to pull income into 2023 to have it taxed at lower rates and defer deductible expenses until 2024 when you can claim them to offset higher-taxed income.

Below, Fiducial offers other tax planning ideas that may help you save tax dollars if you act before year-end.

Tips for Year-End Tax Planning

QBI Deduction

Taxpayers other than regular C-corporations may qualify for a deduction of up to 20% of their qualified business income (QBI). For 2023, if taxable income exceeds $364,200 for married couples filing jointly or $182,100 for others, the deduction may be limited based on: whether the taxpayer is engaged in a service-type business (such as law, health, or consulting), the amount of W-2 wages paid by the business, and/or the unadjusted basis of qualified property (such as machinery and equipment) held by the business. The limitations are phased in.

Taxpayers may be able to salvage some or all of the QBI deduction by deferring income or accelerating deductions to keep income under the dollar thresholds (or be subject to a smaller deduction phaseout). You also may be able to increase the deduction by increasing W-2 wages before year-end. The rules are complex, so consult your Fiducial representative before acting.

Cash vs. Accrual Accounting

More small businesses can use the cash (rather than the accrual) method of accounting for federal tax purposes than could do so in previous years. To qualify as a small business under current law, a taxpayer must (among other requirements) satisfy a gross receipts test. For 2023, if, during a three-year testing period, average annual gross receipts don’t exceed $29 million, you will satisfy the test. This threshold has increased significantly in recent years, not that long ago it was capped at only $5 million. Cash method taxpayers may find it easier to defer income by holding off billings until next year. They may also pay bills early or make certain prepayments.

Tax Planning and Maximizing Deduction Opportunities

Section 179 Tax Deduction

Consider making expenditures that qualify for the Section 179 deduction expensing option. For 2023, the expensing limit is $1.16 million, and the investment ceiling limit is $2.89 million. Expensing is generally available for most depreciable property (other than most buildings) including equipment, off-the-shelf computer software, interior improvements to a building, HVAC, and security systems.

The high dollar ceilings mean that many small- and medium-sized businesses will be able to currently deduct most or all of their outlays for machinery and equipment. Even better, the deduction isn’t prorated for the time an asset is in service during the year. To claim the full deduction for the year, you just need to place the eligible property in service by the last days of 2023.

Bonus Depreciation

Businesses also can generally claim a 100% bonus first-year depreciation deduction for qualified improvement property and machinery and equipment bought new or used if purchased and placed in service this year. Again, the full write-off is available even if qualifying assets are in service for only a few days in 2023.

Consult With Fiducial and Make a Year-End Plan

These are just some year-end tax planning strategies that may help you save taxes. Want Fiducial to tailor a plan that works for you? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.

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