business planning taxation tips

Tax Planning 101 for Small Businesses (Plus 9 Year-End Tax Planning Strategies to Consider Now)

• Successful business tax planning can impact your business’s bottom line and long-term growth.
• It’s important to make the most of tax write-offs and credits to lower your business’s tax liability and pay lower taxes.
• Learn the best tax planning strategies for small businesses in this article from Nav’s experts to prepare for this coming tax season.

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Importance of Tax Planning for Small Businesses

Tax planning is essential for small businesses since it serves as a strategic financial tool that can significantly impact their bottom line. By proactively managing tax obligations, small business owners can unlock opportunities for cost savings and make sure that they maximize deductions, credits, and incentives available to them. 

This not only results in immediate financial relief but also helps with cash flow management , allowing businesses to allocate resources more efficiently. 

Furthermore, year-end tax planning enables small businesses to stay compliant with ever-evolving tax laws, reducing the risk of penalties and legal issues. Choosing the right business entity, optimizing investment strategies, and implementing retirement and succession planning are integral aspects of tax planning that contribute to the long-term financial health and sustainability of small businesses. 

Ultimately, effective tax planning empowers small businesses to navigate the complexities of the tax landscape, make informed financial decisions, and position themselves for growth and success in a competitive marketplace. 

Overview of Major Tax Changes That Will Impact Small Businesses in 2024

Let’s look at the major changes happening to taxes in 2024 that might affect your business.

Changes to Income Tax Rates

Annual changes to income tax rates typically occur due to various economic, fiscal, and political factors. Governments adjust income tax rates as a way to manage fiscal policy, generate revenue, address economic challenges, and respond to social and political pressures.

Also, inflation erodes the purchasing power of money over time. To account for inflation and maintain the real value of tax revenue, governments may adjust tax brackets and rates periodically.

New tax brackets for 2024

A tax bracket is a range of income levels that determines the rate at which an individual or business is taxed. As someone’s income increases and moves into a higher bracket, the applicable tax rate on that portion of income also goes up.

There are still seven tax brackets, which is the same as last year, but the income levels increased.

Changes to corporate income tax rates

The corporate tax rate is the percentage of a company’s profits that it is required to pay in taxes to the government. This tax is applied to a corporation’s taxable income — or revenue minus allowable business expenses and other deductions. This tax is paid by corporations and not other business entities, like LLCs or sole proprietorships. 

The U.S. corporate income tax rate will remain the same — at 21% — in 2024. In early 2023, President Biden had proposed raising the rate to 28% . However, the proposal fell through, so it will stay steady in 2024.

Impact on small business owners’ personal income taxes

Your business’s tax impact on your personal tax returns depends on what kind of entity you run . If you’re a sole proprietor or LLC, your business taxes will automatically pass through to your personal taxes. That means you’ll file one return for both yourself and your business. As an LLC, you can choose to be taxed as a corporation if it makes the most financial sense.

Tax Deductions and Credits

Tax deductions and credits are both used to reduce a taxpayer’s overall tax liability, but they work differently. 

• Tax deductions : Reduce taxable income, meaning the amount of income you bring in that can be taxed. Deductions can include eligible business expenses or certain itemized deductions.
• Tax credits : Directly reduce the amount of taxes owed. Credits are typically tied to specific actions, expenses, or circumstances, like education expenses, child care costs, or energy-efficient home improvements. 

While deductions provide savings by lowering the taxable income, tax credits offer a dollar-for-dollar reduction in the actual tax liability. 

Extension and changes to small business tax deductions

A standard tax deduction is a fixed amount that eligible taxpayers can subtract from their adjusted gross income to reduce their taxable income, simplifying the tax filing process. It serves as a baseline deduction for people who don’t itemize specific expenses like mortgage interest or charitable contributions. 

In other words, if your deductions don’t exceed what’s on the list below, you’re better off taking the standard deduction.

Here are the standard deductions for 2024:

• Single : $14,600 (up from $13,850)
• Married filing jointly : $29,200 (up from $27,700)
• Married filing separately : $14,600 (up from $13,850)
• Head of household : $21,900 (up from $20,800)

Section 179 deduction

The Section 179 deduction allows businesses to deduct the full purchase price (with a maximum of $1,160,000 in 2023) of qualifying equipment and software in the year it was purchased, rather than depreciating it over time. This deduction is designed to incentivize small and medium-sized businesses to invest in capital assets, like machinery, vehicles, or office equipment. So this deduction can give you tax relief while helping you maintain your business’s property. 

Qualified Business Income deduction

The Qualified Business Income deduction is a U.S. tax benefit that lets certain businesses deduct up to 20% of their qualified business income. If you own a sole proprietorship, partnership, S corporation, or a specific type of trust or estate, you may be able to get the Qualified Business Income deduction. Eligible businesses must generally operate in qualified fields and meet specific income thresholds. The deduction is designed to help small business owners and entrepreneurs by reducing their taxable income, fostering business growth, and promoting investment. According to the IRS , “the deduction is available regardless of whether taxpayers itemize deductions on Schedule A or take the standard deduction.”

New and expanded small business tax credits

It’s always good to keep an eye out for new tax credits, or those that may expand to allow you to qualify for them. Here are two important credits you may not have heard of.

Employee Retention Credit

If your business has employees, you may still qualify for the Employee Retention Credit (ERC). The ERC is a tax credit that encourages businesses, particularly those adversely affected by the COVID-19 pandemic, to hold onto their employees. Employers can claim the credit for a percentage of qualified wages paid to employees during the pandemic. Learn more in this article from Nav’s experts.

Paid Family Leave Credit

The Employer Credit for Paid Family and Medical Leave helps business owners provide paid leave to their employees for qualified family and medical reasons. Employers may be eligible for a tax credit ranging from 12.5% to 25% of the wages paid to qualifying employees during their family or medical leave, depending on the percentage of the employee’s regular wages paid during the leave period. To qualify, employers must have a written policy in place that provides at least two weeks of paid family and medical leave annually to qualifying full-time employees. 

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Retirement Plans

It’s especially important as a small business owner to plan for retirement since you don’t have an employer taking out regular contributions to a retirement account. Here’s a breakdown of the changes to expect in the coming year.

Higher contribution limits for small business retirement plans

• Traditional or Roth IRA : Increasing to $7,000 per year.
• Solo 401(k) : Increasing to $69,000 per year with catch-up contributions remaining at $7,500.
• SEP IRA : Increasing to $69,000 (or up to 25% of compensation or net self-employment earnings, whichever is less).
• SIMPLE IRA : Increasing to $16,000 with catch-up contributions remaining at $3,500.

Tax benefits of setting up a retirement plan

Establishing a retirement plan for your business offers several tax advantages. First off, contributions to qualified retirement plans are typically tax-deductible for your business, which reduces its taxable income and potential overall tax liability. 

Additionally, employees contributing to these plans may enjoy tax benefits, including tax-deferred growth. In cases like a Roth IRA, they’ll get tax-free withdrawals in retirement. Employers may also qualify for tax credits, like the Retirement Plan Startup Cost Tax Credit , which can help offset the cost of starting a retirement plan. 

A well-designed retirement plan not only helps employees in saving for the future but also can help your business save money.

Estimated Tax Payments

Now let’s explore what small business owners need to know about estimated tax payments.

Updated IRS rules for estimated quarterly tax payments

Self-employed individuals and businesses that make enough revenue pay quarterly taxes to the government. 

Here’s a brief overview of the key points:

• Frequency : Quarterly tax payments are due four times a year, typically on April 15, June 15, September 15, and January 15 of the following year.
• Who pays : Might include self-employed individuals, freelancers, sole proprietors, partners in partnerships, and S corporation shareholders, among others.
• Calculating payments : Taxpayers estimate their annual income and deductions and calculate the estimated tax for the year. The IRS provides Form 1040-ES to help business owners do the math for their estimated tax liability.

Although there aren’t any big changes in store for 2024, it’s important to keep an eye out for possible changes in the future.

Strategies to avoid underpayment penalties

If you fail to pay (or don’t pay enough) in quarterly tax payments, you might face an underpayment penalty. Common situations leading to underpayment penalties include insufficient withholding from wages, failure to make required quarterly estimated tax payments, or significant changes in income that were not adequately addressed. 

For example, you may have to pay this fine if you hand over less than 90% of the current year’s taxes. Therefore, it’s crucial for small business owners to stay informed about their tax obligations, make accurate estimated payments, and adjust their withholding to avoid potential penalties and interest on the underpaid amount.

Year-End Tax Planning Strategies

It’s important to prepare for the end of the year ahead of time based on your business structure. Working with a professional helps you stay up to date on tax changes, like the 2017 Tax Cuts and Job Act (TCJA). Whether you have a sole proprietorship, a limited liability company (LLC), an S corporation, or a C corporation, using a tax advisor, CPA, or tax software can help make sure your business taxes are accurate. 

Planning ahead also provides time to organize and gather necessary documentation, which helps you make sure to file on time. Additionally, some tax-saving strategies and deductions may have specific deadlines or requirements that need to be met before the end of the tax year. Planning in advance allows businesses to take advantage of these opportunities. 

Lastly, early planning helps avoid the rush and stress associated with last-minute tax preparations, reducing the risk of errors and ensuring compliance with tax regulations. Overall, strategic planning for year-end business taxes is essential for financial management, tax efficiency, and compliance with legal obligations.

Ways to reduce tax bill as a small business

There are many ways you may be able to help lower your tax bill as a small business owner, including:

• Defer income : Delaying billing clients or customers until next year can lower taxable income for the current year. It’s best to do this only if you know that you’ll stay in the same tax bracket the following year. 
• Accelerate deductions : Making expenditures like inventory purchases, business supplies, and equipment upgrades before year-end can provide tax deductions for the current year. This can be a good idea to do one year to beat the standard deduction. The next year, you could skimp on expenses the following year and plan to spend less than the standard deduction (since you would get the same deduction no matter how much you spend). 
• Bonus depreciation : You can deduct up to 100% on eligible assets purchased for business purposes by December 31, which can maximize deductions.
• Section 179 deduction : Deducting on qualifying equipment under Section 179 can reduce taxable income.
• Retirement plan contributions : Making deductible 401(k) or SIMPLE IRA contributions by December 31 can lower business income taxed at the owner’s personal rate.
• Business equipment purchases : Buying necessary equipment, property, or vehicles for the business before year-end may entitle you to valuable tax deductions and credits.
• Charitable donations : Businesses can deduct qualified charitable contributions made by December 31. Consider donating inventory or services.
• Tax loss harvesting : Selling investments at a loss to offset capital gains and up to $3,000 of ordinary income can lower your tax burden.
• Tax estimates : If operating as a pass-through entity, carefully calculating your fourth quarter estimated payment to avoid underpayment penalties.

Summary of Major 2024 Tax Changes Impacting Small Businesses

Overall, there are a few changes that may help small business owners pay less in taxes. First, tax brackets are increasing, which means you’ll have to earn more to fall into a higher tax bracket. Also, retirement limits are higher, which means small business owners can contribute larger amounts to their retirement accounts.

These complicated changes can happen each year, which highlights why it’s essential to work with a tax professional or advisor.

How Nav Can Help

Nav is your small business partner. Don’t spend hours searching for what you need. Instead, use Nav to help you find the right software or service for business taxes that can help you maintain compliance and reduce your tax burden. Also, using the Cash Flow Health tool makes it easier to stay on top of your business’s finances and understand your borrowing power.

Tiffany Verbeck

Tiffany Verbeck is a Digital Marketing Copywriter for Nav. She uses the skills she learned from her master’s degree in writing to provide guidance to small businesses trying to navigate the ins-and-outs of financing. Previously, she ran a writing business for three years, and her work has appeared on sites like Business Insider, VaroWorth, and Mission Lane.

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• Building Your Business
• Business Taxes

8 Year-End Tax Tips for Small Businesses

Tax Credits and Deductions Can Save Your Business Money

Stock Up and Pre-Pay Expenses

Set up a 401(k) plan for employees, write off bad business debts, write off or write down obsolete equipment and inventory, give employees bonuses or gifts.

• Bonus Depreciation & Section 179 Deductions

Purchase Energy-Efficient Vehicles and Property

Time your income and deductions, frequently asked questions (faqs).

Cavan Images / Getty Images

Filing taxes is an unavoidable chore but it’s a necessary part of running a successful small business. The good news is that you have opportunities to save money on business taxes by claiming deductions and credits, and making smart moves at the end of the tax year.

Paying attention to timing is critical for leveraging tax benefits for your small business. Doing some year-end housekeeping can help you make the most of any tax breaks your business qualifies for.

Key Takeaways

• Year-end tax planning can help to maximize opportunities to claim deductions and credits for your small business.
• Using surplus cash to pre-pay expenses or stock up on supplies and inventory can increase your deductible expenses for the year.
• Deferring income could help you to push tax liability into future years, but it's important to consider how that can affect your business financially.

2017 Tax Changes To Remember for Year-End Tax Planning

The 2017 Tax Cuts and Jobs Act (the "Trump Tax Cuts") instituted a number of changes to the way small businesses handle taxes. These tax changes below could impact your business taxes, so it’s important to remember them at the end of the year:

• Eligible businesses can claim a 20% deduction from net business income, subject to restrictions and limits
• Certain deductions for small business have been eliminated, including the deduction for entertainment expenses  
• If you have bought or plan to buy large capital items like vehicles, machinery, or equipment, higher first-year depreciation limits could save you money

You may want to consider hiring a tax expert to help you with filing business taxes if it’s your first time doing so.

Claiming a deduction for eligible business expenses can save money, as deductions reduce your taxable income for the year. If you have any cash sitting around, or you can reasonably use your credit line or a business credit card for purchases, stocking up on supplies or pre-paying certain expenses could give you a larger deduction:

• Replenish office supplies or any supplies you use regularly
• Stock up on inventory, especially if you’re able to find it at a discount
• Pre-pay insurance coverage for the next year
• If you use subscription services, switch from a monthly to yearly payment

Setting up a 401(k) for yourself and your employees is another way to save on business taxes. You can claim a tax credit for your business for the cost of setting up and administering a 401(k) plan, up to $500 a year for each of the first three years the plan is in existence. Even if you have a sole proprietorship , you can still use a solo 401(k) to set aside money for your retirement and save on business taxes. The potential tax savings could more than pay for the cost of setting up the plan and funding it. The Department of Labor suggests following these steps:

• Adopt a written 401(k) plan document
• Arrange a trust for the plan’s assets
• Develop a recordkeeping system to keep track of contributions
• Provide plan information to employees who are eligible to participate

A bank or brokerage can help you set up a plan for yourself and your employees. If you’d like to create an individual 401(k), you can start the process online through a brokerage that offers them.

Bad (un-collectible) debts can be written off before the end of the year and the uncollected debts can be deducted from your taxable business income. The IRS also includes unpaid loans and business loan guarantees under the bad debt umbrella. To deduct bad debts, you must use the accrual accounting method:

• Run an accounts receivable aging report to see which receivables are unpaid from customers or clients
• Make note of which debts you may still be able to collect on and which ones have a high certainty of remaining unpaid
• Add up all bad debts you want to write off and review the list with your tax advisor

Just know that if you receive the money from the customer later, you will have to reverse the write-off and declare the payment as income.

Obsolete , damaged, or worthless equipment can be taken off your accounting records to increase your expenses and lower your tax liability. You can write it down, meaning you reduce its value for tax purposes, or write it off, in which case its value drops to zero:

• Review your business inventory and equipment
• Mark items that are obsolete, worthless, damaged beyond repair, or damaged but still usable
• List the full value of the items that are obsolete or worthless for write-off
• List the reduction in value for items that are damaged but still usable for write-down
• Claim the total expense for write-offs and write-downs as a deduction when you file your tax return

For example, if you have a computer that you purchased for $2,000 and it's sitting in a back room because it no longer turns on and you bought a new computer, you can expense the full $2,000 purchase price because the computer is obsolete. If a piece of equipment costs $1,000 new and you feel its value is $300 less because of damage, you can list $300 as an expense, reducing the book value to $700.

In addition to receiving a tax deduction for paying bonuses or gifts to your employees, you may also receive much goodwill from employees, especially around the holidays. 

Bonuses to employees of all types of companies are deductible business expenses if they're considered additional pay for services, not gifts. But, bonuses to sole proprietors , partners , and limited liability company (LLCs) members are not deductible, because the owners/partners/members are considered by the IRS to be self-employed.

Holiday gifts and holiday parties may be deductible as long as they are not routinely/frequently given and are for the purpose of promoting goodwill.

Claim Bonus Depreciation and Section 179 Deductions

Changes to the tax code allow for accelerating depreciation on certain types of business equipment. In simpler terms, these provisions allow you to expense more of the value of business equipment purchased this year, for a larger tax deduction.

Bonus Depreciation

Bonus depreciation allows businesses to depreciate up to 100% of the adjusted basis of certain qualified property during the year that the property is placed in service, if that property is placed in service between Sept. 27, 2017, and before Jan. 1, 2023. You should be aware that some states modify or deny bonus depreciation. Check with your state department of revenue to see what the provisions are in your state.

Section 179 Depreciation

Section 179 allows taxpayers to deduct the cost of certain property as an expense when the property is placed into service. That includes machinery, equipment, and qualified real property. The current maximum deduction is $1.08 million, with a phaseout limit of $2.7 million.

If it's in your budget to upgrade vehicles or property, you could see a decent tax break at year’s end.

Energy-Efficient Property

The 179D deduction allows businesses to claim a tax benefit for energy-efficient improvements made to commercial properties. The tax deduction is $1.88 per square foot for owners of new or existing buildings who install energy-efficient lighting, heating, cooling, ventilation, and hot water systems. Building envelopes are also eligible for the deduction.

Alternative Motor Vehicles and Hybrids

Section 30D of the Internal Revenue Code provides a credit for the purchase of alternative motor vehicles and hybrid cars , including plug-in electric vehicles. You must be the original purchaser of this vehicle. The total tax credit is capped at $7,500 per vehicle.

One final year-end tax tip for small businesses revolves around deciding when to time the receipt of income and when to pay expenses. Getting the timing right matters for maximizing tax savings.

Deferring Income

As you get to the end of your business tax year, you may have the option of taking income in this year or next year. If you can take income in the year of the lower profit , you may be able to minimize your taxes.

For example, if this year you will have a loss, but you know you will have a profit next year, you may want to encourage customers to pay you this year when your profits will be lower. If you think your profit will be lower next year, try to move payments from customers into next year. This is tricky, since you don't really know what will happen next year, but it is worth a discussion with your tax advisor.

Timing Deductions

When considering whether to take a deduction for an expense this year or next year, here are three points to take into account:

• Take the deduction in the year when your profit is higher : This will result in lower profits in that year.
• Take the deduction in the year when the deduction amount is higher : Some deductions change from year to year. Learning about these changes can save you money by allowing you to take the deduction when it is higher.
• Take the deduction in the year when the tax rates are higher : If you know that business tax rates will increase next year, take the deductions next year to minimize your taxable income in that year.

The principle of timing income and expense deductions, if done thoughtfully and with the assistance of your tax advisor, could lower your business taxes.

What is the best tax planning software for businesses?

There are a number of tax planning software programs businesses can use to track income and expenses for tax purposes. The best tax software program for your business is the one that you find easiest to use, has the features you need to complete your tax planning, and comes at a price that’s affordable for your budget.

How do you file business taxes for an LLC?

The way you file taxes as an LLC can depend on whether you are the sole owner. If you're the sole owner of an LLC, the IRS considers you to be a sole proprietor. In that case, you'd file a personal income tax return (1040) and file a Schedule C to report business income and expenses. If you opt to file taxes as a partnership or as a corporation, then you'll need to file IRS Form 1065 or Form 1120, respectively.

IRS. " Tax Cuts and Jobs Act: A Comparison for Small Businesses ."

IRS. " Retirement Plans Startup Costs Tax Credit ."

Department of Labor. " 401(k) Plans for Small Business ."

IRS. " Topic No. 453 Bad Debt Deduction ."

U.S. Small Business Administration. " Tax Results for Giving Up on Company Property ."

IRS. " Publication 535, Business Expenses ."

IRS. " New Rules and Limitations for Depreciation and Expensing Under the Tax Cuts and Jobs Act ."

IRS. " Publication 946 (2021), How To Depreciate Property ."

Department of Energy. " 179D Commercial Buildings Energy-Efficiency Tax Deduction ."

IRS. " Plug-In Electric Drive Vehicle Credit (IRC 30D) ."

IRS. " Instructions for Schedule C ."

IRS. " Instructions for Form 1120 ."

IRS. " Instructions for Form 1065 ."

Contributor,

Darin Wickens

Strategic Tax Planning for Business (with Tips and Examples)

“If you fail to plan, you are planning to fail” – Benjamin Franklin. Failing to develop and implement a  great  strategic tax plan for business  is a sure-fire way to overpay taxes. So why do so many business owners and their accountants neglect tax planning?

Here’s everything you need to uncomplicate the strategic tax planning process and the steps you can take to create a  tax-optimized business strategy .

Table of Contents

What is strategic tax planning for business?

Importance of tax planning for your business, the current state of tax planning and advisory, save taxes by being proactive—not reactive, is tax planning worth the extra cost, tax minimization, tax evasion, tax avoidance.

• Business entity structure
• Tax filing status
• Asset location
• Tax-loss harvesting
• Income shifting
• Capital gains harvesting
• Charitable giving
• Get organized
• Understand your tax obligations
• Know your deductions and credits
• Choose the best strategic tax and accounting method: cash or accrual
• Use tax planning software
• Stay up-to-date with tax law changes
• Work with a tax planning professional

How Tax Hive can help

Tax planning without the stress.

“If you fail to plan, you are planning to fail” – Benjamin Franklin. Failing to develop and implement a great strategic tax plan for business is a sure-fire way to overpay taxes. So why do so many business owners and their accountants neglect tax planning?

As a business owner, you juggle many priorities. You probably have strategic initiatives to increase sales and reduce costs. But far too many overlook what likely is their most significant expense (and opportunity): Taxes.

If you’re burying your head in the sand and only thinking about taxes when you’re forced to – during “tax time” or when making quarterly payments, you’re almost certainly paying too much in taxes.

We understand taxes can be complicated and overwhelming at times. The tax code is thousands of pages long and isn’t the easiest to understand. Combining this with the reality that many taxpayers are terrified of an audit, we know the anxiety and why you might naturally avoid thinking about taxes.

Here’s everything you need to uncomplicate the strategic tax planning process and the steps you can take to create a tax-optimized business strategy .

Strategic tax planning involves looking forward one, five, 10, or 20 years rather than looking back at the past year (which is tax preparation in a nutshell). When you plan, consider what you can do to pay the lowest tax possible while arranging some of your savings to generate a tax-free income.

Here’s an example: If you had an extra $35,000 in income every year, but that income was taxed at a combined federal and state rate of 30%, you would be left with $24,500. You could turn a loss of $10,500 into a gain through careful tax planning. You could invest that money in a laddered bond portfolio or a well-structured low-cost indexed life policy that offers tax-free distributions, for example.

Tax planning allows you to use different tax exemptions, deductions, credits, and available benefits to minimize how much tax you owe, legally and morally. That’s more money you can put towards other financial goals like advertising campaigns, capital investments, employee bonuses, or even personal financial goals like paying down a house, saving for retirement, or taking a vacation. It also gives you a snapshot of your finances and taxes at the beginning of the fiscal year instead of leaving it to the eleventh hour.

It can be helpful to think of tax planning in terms of your favorite sporting activity. In basketball, for example, you have rules, time restrictions, and referees. You also have a coach, teammates, and plays you’ve drawn up and practiced together. Waiting until the third or fourth quarter usually won’t win you the game – the preparation, planning, practice, and in-game adjustments win the game.

When you own a business, paying taxes is your obligation. However, you should never be surprised by how much you owe. Understanding how business taxes work and calculating how much you have to pay every quarter or year is essential to ensuring you have enough money or a surplus to spend elsewhere in the business.

When you invest in tax planning, you accomplish a few things. First, you lower the risk of making inaccurate tax estimates. Second, you reduce the risk of forgetting to file and pay taxes on time, leading to unnecessary fees and other penalties. And last but not least, tax planning can help you find money in tax deductions, credits, or other areas you otherwise may miss entirely.

Other benefits of tax planning include:

• Lower tax rate: It may be possible to lower your effective tax rate and reduce your tax burden using strategies that aren’t widely known.
• Reduce taxable income: Reduce the amount of income that gets taxed, with or without a change in the tax rate.
• Flexibility in paying taxes: Manage cash flow and minimize unnecessary fees and penalties by scheduling quarterly estimated taxes.
• Tax credits: Take advantage of tax credits that benefit your business and reduce your overall tax bill.

The reality is that business taxes can be complicated. Plus, tax laws often change over time and from one region to another, and many regulations apply selectively to certain scenarios and business types.

If you hire a trusted financial adviser who is well-versed in tax strategies, that person will be able to flag any most relevant updates to your business. The more legal loopholes they can find, the more you’ll be able to save, so it’s important to consider getting help here.

With new U.S. tax legislation, as well as the impact of the pandemic on businesses, tax planning has become an essential tool to boost a business’s bottom line.

However, many tax accountants don’t currently offer tax planning as a service.

A 2021 Tax Planning and Advisory Insights survey by Intuit Accountants showed that only 1 in 3 clients currently receive tax planning and advisory services.

So, why the low numbers? If tax planning is critical to optimizing your tax situation and saving as much money as possible, why aren’t most accountants doing it? For the most part, it’s just basic economics – they have a finite amount of time and other limited resources.

And for the tax professionals who provide tax planning services, they’re billing up to five times the cost of basic tax preparation.

In addition to cost alone, tax planning requires specialized knowledge of the tax code and the ins and outs of the 1,400 plus tax deductions and credits. It’s incredibly time-consuming, with several hours spent preparing a “typical” tax plan.

But as clients become savvier about the needs of their business, the demand for tax planning is growing, and tax professionals are taking note. Many tax professionals are strongly considering adding tax advisory as a service.

Many small business owners are familiar with reactive tax planning. You monitor your sales throughout the year and keep your expenses under control, so you don’t break the bank. And at the end of the year (or quarter), you crunch these numbers to figure out how much you owe in taxes.

While reactive tax planning can help your business reduce its taxes, it isn’t the most effective method for your business. It can lead to a last-minute rush where you miss additional deductions and certain credit benefits. You also risk bringing in an advisor who isn’t familiar with your business’s financial picture over the previous year, putting the onus on you to ask the right questions.

You’ll succeed better if you ditch this method and consider proactive tax planning.

Proactive tax planning is strategic tax planning for business. It gives you more freedom throughout the year and at tax time. It’s also key to making your business more profitable and growing your in the long term. It works by looking at state and federal tax laws ahead of time and working within them, curbing your tax liability at the end of the year.

Enlisting professional advisory services (such as Tax Hive) and communicating with one of our tax pros is key to getting the most out of proactive tax planning. We work closely with you to ensure we don’t miss valuable strategies or other ways to make your business more tax-efficient.

Paying an additional cost when trying to reduce your overall expenses may not be an attractive option at first glance—but it’s important to note that tax planning is an investment .

As mentioned earlier, tax planning and advisory services may cost you more than basic tax preparation. However, the result can far outweigh the initial cost. For instance, an internal study of more than 20,000 business owners by Tax Hive found that business owners are missing over $60,000 in potential business tax deductions.

Tax minimization, tax evasion, and tax avoidance: the differences explained

There are three basic strategies to lower the amount you pay Uncle Sam each year — tax minimization, tax avoidance, and tax evasion. Two are entirely legal, but practicing one of them could land you behind bars.

Tax minimization is 100% legal. You use the most tax-efficient methods to get long-term benefits for you and your business. It involves income shifting, entity structuring, tax deductions and credits, writing off appropriate expenses, or taking advantage of benefits through health insurance and retirement plans. It’s a way to optimize your business—before tax season starts.

If you’ve watched legal dramas or gangster films, there’s a good chance you’ve heard of the term “tax evasion.” Tax evasion is an illegal practice where taxpayers don’t accurately report their total income earned to avoid paying higher taxes. Evasion could include underreporting sales, claiming inflated or unwarranted deductions, forging documents, and transferring illegal assets. A form of tax fraud, tax evasion is a serious crime that can lead to hefty fines and even jail time.

While tax evasion is against the law, tax avoidance is a way to reduce your tax liability legally. Avoidance could include decreasing business expenses, maximizing tax credits, taking advantage of loopholes, or deferring the payment of taxes with a pre-determined plan. It’s important to note any tactics used to avoid taxes must fall within the framework of the law. That said, it’s a good idea to seek the advice of a tax expert or attorney to ensure you haven’t crossed over into tax evasion territory.

Common business tax planning strategies

1. business entity structure.

Each business entity and structure has its tax benefits and drawbacks. 

Let’s look at sole proprietorship, for example. It’s the most common type of business in the U.S., representing 73 percent of all businesses . While sole proprietorships are easy to start and inexpensive to operate, they’re generally not the best business structure for many things, like limiting personal liability or reducing taxes.

Sole proprietorships generally aren’t great for reducing taxes because your business and personal income aren’t taxed as separate entities. Instead, they’re considered “pass-through” entities. This means your business income and expenses are passed onto you, the business owner, and recorded on your individual income tax return. So, your business ends up contributing to higher overall income, potentially raising your all-in tax rate for both personal and business, depending on your income bracket.

Incorporating can potentially reduce your tax liability. For one reason, the Tax Cuts and Jobs Act lowered the corporate tax rate to 21% in 2017. You can also save on self-employment taxes with the proper tax filing election (e.g., S-Corporation election). But that doesn’t mean it’s the best move for everyone.

The cost of incorporation can get pricey and comes with strict reporting requirements, which can add a pile of paperwork to your to-do list.

Whether a C corporation , partnership , or limited liability company (LLC) , switching to another entity type can significantly impact how much you might pay (or save) in taxes. Talking through your options with a tax professional—or your in-house Tax Hive advisor—can help you evaluate your choices and what structure might best suit your tax needs. It’s valuable to consider your tax filing status before you set up a formal business entity.

2. Tax filing status

Your filing status determines your filing requirements, standard deduction, eligibility for certain credits, and your correct tax. If more than one filing status applies to you, the IRS has an online questionnaire you can do to help you choose the one that’ll get you the lowest amount of tax.

The type of business and how you structure your business largely determine the tax return you need to file. If your business is a sole proprietorship, you report your business income on the Schedule C (Form 1040) income tax form. For a partnership, report your expenses, losses, and income on Form 1065 .

If you own a single-member LLC, the IRS treats you as a sole proprietor, so you’ll use Form 1040 , Schedule C, E, or F. If the only member of the LLC is a corporation, report the LLC income plus expenses on the corporation’s return on Form 1120 .

Depending on your business structure, you may qualify to file your corporate taxes as an S Corporation (also known as S-Corp or S Corp). An S Corporation is not a business structure. Instead, an S Corp is a tax filing status that allows your business to pass corporate income and expenses to shareholders for tax purposes.

Operating a corporation and LLC but filing taxes as an S Corporation can bypass double taxation and significantly reduce your self-employment taxes. You should work closely with a tax professional, accountant, or attorney to evaluate eligibility, deadlines, and requirements. You can read more about Form 2553 from the IRS. When you file taxes as an S Corporation, you’ll use Form 1120-S .

3. Asset location

Organizing your assets through asset location is key to dramatically reducing taxes in your portfolio and enhancing the tax efficiency of your investments.

Asset location focuses on where to strategically invest your money to maximize your return on investment after-tax rather than how to invest. Don’t confuse it with asset allocation , which is how you mix and distribute your assets within a given account.

Generally, you’ve got three types of accounts for investing and saving, each with different tax treatments: tax-advantaged, tax-free, or taxable accounts.

• A tax-advantaged account is a kind of savings plan or financial account where you get a tax benefit such as tax deferral or tax exemption. This account is famous for retirement savings, education expense savings, and savings for healthcare expenses. Investment examples within a tax-advantaged account include stocks, actively managed funds, mutual funds, high-yield bonds, REITs, and annuities.
• A tax-free account lets you save with after-tax dollars. You don’t escape taxation entirely since you’re using the money you’ve already paid taxes on. But when you make qualified withdrawals, you pay no additional income tax–not even on your investment growth. Some tax-free accounts include Roth IRAs, Roth 401(k)s, and Roth 403(b)s.
• With a taxable account , there’s a downside: You don’t get a tax deduction for the money you put in, unlike a 401(k) or a traditional IRA. And you don’t get to duck paying taxes when you take cash out like you can with a Roth. Instead, you must pay capital gains tax on the earnings from your investments when you sell them. On the upside, a taxable account doesn’t put a ceiling on your contribution amounts like tax-deferred and tax-free accounts do.

When allocating your growth assets (like stocks) across the different account types, you should consider these factors:

• The tax efficiency of assets (What kind of gains do they make? Long-term, short-term, or ordinary?)
• The management style of assets (Do you manage assets passively or actively?)
• Client profile (age, time horizon, tax bracket, taxable income level, liquidity needs, and estate planning needs)

4. Tax-loss harvesting

It’s bad news when you lose money on your investments, right? Watching your portfolio shrink in a bear market can be downright painful. But a reasonably simple tax-loss harvesting strategy can help turn that pain into a tax advantage.

Tax-loss harvesting (also called tax-loss selling) happens when you sell an investment that has dropped in value below what you paid, triggering a capital loss.

You then use the proceeds of the sale to buy a comparable investment (in the same sector, for instance) while the market is still down, hoping it will increase in value over time and deliver a capital gain.

You then apply your capital loss to your capital gain, and presto! Tax savings.

Why not sit on your original investment until the price recovers and even jumps above your purchase price? Because you’d still have a capital gain, but you wouldn’t have a capital loss to offset it.

And if you sold low but didn’t jump back into the market, you’d miss the chance to squeeze some value from your capital loss. Because you don’t pay tax on capital gains inside registered accounts, tax-loss harvesting only works for taxable, non-registered investment accounts.

5. Income shifting

Income shifting is moving unearned income from someone in a higher tax bracket to someone in a lower tax bracket. It aims to save tax by moving investment or business income off your tax bill to a retired parent or child, for example.

You can do this in a few ways. One is to hire, say, your 18-year-old son, to work at your business. You get a business deduction for their wages, and your son pays less tax on that money than you would have. If you have a sole proprietorship or partnership and hire a child under 18 to work for you, your child doesn’t have to pay Social Security or Medicare taxes.

It’s a bonus that you’re already supporting your child, so why not get a tax break? You may not control what your child spends their wages on, but you can agree that a share of it can go towards an investment like their college fund.

The IRS knows people will go to tremendous lengths to outwit them, so they’ve put a lot of rules and limits on income shifting. If you hire your child, it has to be a real job, paid at the going rate, and you should have proof of the work.

There are also rules about what kinds of assets you can transfer, how old a child must be to accept the transfer, and a ceiling on the amount transferred before it triggers the gift tax. Talk to your accountant to ensure you’re doing it by the book.

6. Capital gains harvesting

Capital gains harvesting is strategically selling your winning investments to reduce current and future taxes and create a more balanced portfolio. How does it work? Capital-gain harvesting offers investors the chance to achieve long-term capital gains with little or no impact on their taxes. It can work in three ways:

• If you have a fluctuating income (you’re self-employed, work part-time, or on sabbatical) and know it’s going to be a lean year, it’s an excellent time to sell your high-performing assets, realize your gains and pay lower tax on them than you would in a high-income year.
• If you have losses elsewhere in your portfolio, you can use them to cancel out any tax you might owe on your gains.
• If a particular class of assets is performing very well for you, its value in proportion to your entire portfolio won’t line up with the asset mix you want to maintain. So, selling some high-performing assets and using that money to buy lower-performing assets “on-sale” will let you put your portfolio back into balance.

But we know the IRS doesn’t make it too easy to avoid paying taxes. They’ve created some rules about capital gains harvesting, too. For instance, you must own an asset for at least a year to qualify for the tax rate for long-term capital gains (which is lower than the regular capital gains tax rate).

And selling your assets may put you on the hook for net investment income tax or alternative minimum tax. Again, your accountant or financial advisor can help you avoid these pitfalls.

7. Charitable giving

Whether you’re sponsoring your local Little League team, creating an endowment at your alma mater, or doing something in between, your charitable giving can benefit your small business’s bottom line and your community.

Like all the tax breaks we’ve discussed, there are  limits  on how much money you can donate during any given tax year. As an individual, you can donate and write off up to 100% of your taxable income, while your business can donate and write off up to 25% of its taxable income.

If you take the standard deduction (as most people do), you may not see an additional tax benefit for your giving. Don’t let this stop you from making a charitable donation.

Here’s one way to give strategically to maximize your deduction: Instead of making donations below the standard deduction for several years, cluster them in one year. That way, the total you give exceeds the standard deduction, and you get a better tax break. Depending on how much you donate, you can do this by giving every other year or even every third year.

Another popular way to make the most of your charitable donations is a donor-advised fund. Donor-advised funds let you make charitable contributions and get your tax deduction immediately. You can put several years’ worth of donations into the fund, take the full deduction for that year, and then decide how, where, and when to hand out your money in the following years.

7 tips to help with successful tax planning

As you get started with tax planning, here are seven things you can do to streamline the process.

1. Get organized

It can be easy to throw away receipts or forget to keep track of smaller expenses, but for tax purposes, it’s best to keep as many records as possible. Any tax-planning advisor will ask you for details and records of all your accounts. But even if you’re not working with one, it’s your responsibility to keep track of all financial aspects of your business. By doing so, you can customize tax strategies to their needs.

2. Understand your tax obligations

A basic understanding of federal, state, and local tax regulations can help you avoid paying too much in taxes and protect you from the risk of paying too little. Also, with some knowledge of tax-related topics, you’ll be able to identify potential tax benefits (and tax traps) in time to do something about them. Even if you believe no taxes are due, you’re still responsible for filing the return.

The IRS provides a list of due dates and directions for filing your taxes. That said, we strongly recommend hiring an accountant to set up your tax filings and payment schedule. Missing a due date, not paying the taxes owed, or not filing at all could raise flags with the IRS. You could face potential IRS scrutiny, fines, tax penalties, and interest.

3. Know your deductions and credits

The answer to having the lowest tax bill is not leaving a single tax credit or deduction on the table. Both reduce your tax bill, but in separate ways. Knowing the difference allows you to work out some very effective tax strategies.

A tax deduction reduces your taxable income and is taxed at a certain percentage based on your bracket. Basically, only a specific rate of every dollar you deduct gets taken off your income tax.

For example, if your tax rate is 10%, one dollar of deductions will give you 10 cents of tax savings. With a 24% tax rate, one dollar will save you 24 cents.

Operating expenses are a good example of tax deductions as they allow you to deduct any reasonable expense you incur to earn income, including any tax paid on that expense. This includes things like bad debts, business insurance, education, marketing costs, work-related travel expenses, and office supplies.

A tax credit , on the other hand, decreases your taxes directly by reducing the income tax you owe dollar for dollar. A few credits are refundable, which means if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a refund for the remainder of $750. (Most tax credits, though, aren’t refundable.)

There are hundreds of credits and deductions out there. Here’s a list of common ones that will help you get a larger tax return.

Further reading: Self Employed Tax Deduction Cheat Sheet

4. Choose the best strategic tax and accounting method: cash or accrual

Which strategic and accounting method should you use? It depends on the timing of when you reflect sales and purchases in your books.

Cash accounting identifies expenses and revenue only when cash changes hands. It’s used mainly by small businesses and sole proprietors with no inventory.

Accrual accounting reports revenue when a business earns money (e.g., when a project is complete) and expenses when billed (e.g., when you receive an invoice) but not yet paid. According to the IRS, corporations (other than an S corp) with gross receipts averaging over $25 million for the last three years must use the accrual method.

Your choice will make a difference in how your company schedules tax payments.

With the cash method, taxes are not paid on money you haven’t yet received. With the accrual method, taxes are paid on money that you’re still owed.

5. Use tax planning software

With technology continuously evolving, it’s now easier than ever to file your taxes using the software. Tax software allows you to prepare your taxes quickly and efficiently, making tax refunds you deserve easier to get.

As a small business owner, you know how crucial accurate record-keeping is for your company’s success. Platforms like Holistiplan, Tax Planner Pro, and TaxWise can save you time, maintain precise bookkeeping records, reduce errors, and automatically create reports that’ll help you understand your business finances and help you complete your taxes in less time. You can file documents in one place and organize your records year-round with just a few clicks.

You can also plan out how much tax is due, determine what deductions you can claim for your business, and see where you must comply with government regulations and rules. Not being organized could leave you paying far more taxes than you need to.

6. Stay up-to-date with tax law changes

With the U.S. tax law constantly changing (even more so since the pandemic), keeping up with the latest IRS rules and regulations can be a superhuman feat.

Having a tax plan helps you understand what’s changed and lets you reassess your strategy when needed. By understanding current tax laws, you won’t risk noncompliance with new or updated regulations, and your tax return will contain fewer errors. You’re then less likely to face an audit or have to pay more money down the line.

Here are some significant tax changes for the 2022 tax year.

Working with an accountant can ensure you comply with current regulations and pay the right amount.

7. Work with a tax planning professional

There’s nothing fun about paying taxes, so coughing up high fees to handle your taxes can exacerbate an otherwise unpleasant situation. On the other hand, preparing your tax return can be risky. It can cost you thousands of dollars in overpaid taxes, fines, and penalties because of overlooked deductions and simple mistakes.

For that reason, many small business owners hire a CPA, accountant, tax attorney, or a specialized tax professional with a proactive approach to tax planning to take care of their taxes and provide other accounting and business advice. As we discussed above, many CPAs, accountants, and tax preparers don’t provide proactive, comprehensive tax planning.

Tax planning services may cost more initially, but they can help your small business grow by providing advice on short-term and long-term tax-saving opportunities.

If you’re still in the process of hiring an accountant, bookkeeper, and tax advisor for your small business but need help with your tax-saving plan today, Tax Hive will pair you with an experienced accountant to help evaluate your needs and execute an optimized tax plan . Our tax-slashing technology and tax experts look at over 1,400 federal, state, and local deductions as they review your unique situation.

Even after building your plan, Tax Hive professionals are always available to answer questions, address concerns, and make appropriate adjustments. They’ll also ensure you’re ready come tax time with a year-end financial plan, including all the information you need to file—our tax team can even file your taxes for you.

Do you have a CPA, accountant, or tax prep firm you already like? No problem. Simply take our plan to them to implement on your behalf.

A well-implemented strategy allows you to execute a tax plan tailored to your business and its needs. Tax season and financial planning are much more effective and less stressful when you have a solid plan. Doing so is a step in getting ahead of your competitors, allocating more money towards business growth, and ultimately lowering your taxes.

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19 Small Business Tax Planning Strategies to Slash Your Tax Bill [2023]

This post was originally published on   February 24, 2022,   and extensively updated on January 4, 2023.

As a business owner, it’s your job to take care of a host of obligations. One moment, you may be managing a human resources issue, and the next, you are coping with a customer complaint. Wearing so many different hats can make it difficult to stay on top of other, less frequent aspects of running a business, such as taxes.

At CMP , we’re familiar with the tax challenges that businesses face. One of the most frequently asked questions we hear from our business clients is this:

What’s the best tax strategy to use for my business?

Having a tax strategy is essential because it governs everything you do and provides a framework that allows you to fulfill your tax obligations without overpaying. In this post, we will review some business tax basics and reveal 19 of the best tax strategies for business owners.

Reduce Tax Liability with These Tax Planning Strategies for Your Small Business

Now that we’ve covered some of the basics, here are 19 tax strategies to help you minimize your tax burden and save money at tax time.

1. Look for Ways to Reduce Your Adjusted Gross Income

Many of the taxes you pay are tied to your adjusted gross income or AGI. For example, if your AGI doesn’t exceed $200,000 or $250,000 if married and filing a joint return, you won’t be required to pay the additional 0.9% in Medicare taxes. You can lower your AGI by reducing your salary or doing one of the following things:

• Contributing to a tax-deferred retirement plan
• Itemizing deductions if they exceed your standard deduction
• Contributing to a health savings plan

If you think you might want to itemize deductions, consider tracking them on a spreadsheet throughout the year. That way, you won’t need to scramble to calculate them at tax time.

2. Be Strategic with Your Tax Elections

Applying some strategies to your business expenses can help you reduce your taxable income. For example, if you acquire new business equipment or machinery, you can deduct the cost upfront up to $1 million under the 2018 tax law.

However, for new businesses or those that aren’t yet turning a profit, you may want to consider depreciation as an alternative. Depreciation allows you to deduct the value of your purchase in future tax years instead of all at once. That’s beneficial if you expect your profits to increase and push you into a higher tax bracket.

Other tips include:

• Deducting home office expenses based on actual costs or the IRS simplified rate , which is $5 per square foot up to 300 square feet of space.
• If your business has been impacted by a disaster, you can claim the losses on your prior year’s returns instead of the year when the disaster occurred.
• You can choose between deducting vehicle expenses based on the actual cost or the IRS mileage allowance of 58.5 cents per mile from 1/1/22-6/30/2022, then at 62.5 cents per mile from 7/1/22-12/31/2022
• Deduct business insurance expenses, including liability, workers’ compensation, commercial auto, and business interruption services insurance.

The IRS scrutinizes insurance deductions closely, so ask your accountant before taking deductions.

3. Rethink Your Exit Planning Strategy and Wealth Transfer Strategies

As 2022 draws to a close, it’s essential to look at economic conditions and rethink your business exit plan and wealth transfer strategies. According to Bloomberg News , there is a 100% probability of a recession sometime in 2023, which increases the importance of planning.

Here are some things you can do to minimize your tax burden and protect your business going into 2023.

• Review your estimated net income . If your income is lower than expected, you may want to seek out tax credits and other tax benefits that you may not have qualified for at a higher income level. If it’s higher than expected, then you can get aggressive with deductions by making donations and finding other ways to reduce your taxable income .
• Reassess your business entity . As your business income increases, it may become necessary to reconsider your business structure from a tax perspective. If you’re a sole proprietor, you may want to incorporate it as an LLC, and some LLCs may wish to apply to file as an S corporation to save money.
• Optimize Your Retirement Plan . It’s possible to save thousands of dollars by offering your employees a retirement plan and using your contributions to lower your tax burden.
• Evaluate Your Business Succession Plan . If you already have a business succession plan , the end of 2022 is a good time to review and make changes as needed. If you don’t have one, then you’ll need to create one to prepare your heirs for what will happen when you’re preparing to hand over the reins to them.

Working with a tax professional can help you evaluate your strategies and make the most of any opportunities to secure your business succession plan and wealth transfer strategies.

4. Acquire Assets at the End of the Year

In some tax years, it may be beneficial to estimate your business taxes and then acquire new and used assets to reduce your taxes.

The Tax Cuts and Jobs Act of 2018 allows a 100% bonus depreciation. It may be worthwhile to take advantage of it, particularly in years when your profits have been high. It is important to remember that assets you purchase must be placed in service before the end of the year.

5. Help an Employee with Student Loans

The CARES Act, which was signed into law by then-President Trump in 2020, included a provision that allows employers to assist employees with student loans. It used to be that if an employer repaid part of an employee’s student loans, the employee had to pay taxes because the payments were seen as income.

Discover how different types of income are taxed in our blog post: " Breaking Down Income Types: How Each Is Taxed ." Understanding how your income is taxed is crucial for proper financial planning. Our article comprehensively summarizes various income sources, including wages, investments, rental earnings, and more. Gain valuable insights into the tax implications of different income types, helping you confidently navigate the complex world of taxation.

The CARES Act included an exception that allows employers to get a payroll tax exemption for repaying employees’ student loans and excludes the repayments from employees’ income, meaning that they don’t have to pay taxes.

This provision will remain in effect through 2025 and presents an opportunity for employers to earn some goodwill with employees while also saving money on payroll taxes.

6. Establish Fringe Benefit Plans for Employees

When you increase employees’ wages, you also trigger higher employment tax costs. One way to get around that is to offer fringe benefits as part of employees’ compensation.

Some of the tax-exempt benefits you may want to consider include the following:

• Medical and dental insurance
• Long-term care insurance
• Disability insurance
• Group term life insurance
• Childcare assistance
• Tuition reimbursement
• Transportation
• Employee meals
• Student loan payments (see above)

You can find more information about eligible fringe benefits here .

7. Take a Tax-Free Loan from Your Business

A lot of business owners don’t know that they can take out a low- or no-interest loan from their business. If the loan interest is below the Applicable Federal Rates set by the IRS, you may need to report the interest.

You can check out the current IRS set rates here . Of course, you should ask your accountant before implementing this strategy.

8. Don’t Ignore Carryover Deductions

You already know that some deductions have limitations. The same is true of tax credits , which means that you may not be able to use them fully in the current year. However, you may not be aware that some of these deductions allow a carryover to future years.

Examples of carryovers include capital losses, general business credits, home office deductions, net operating losses (up to 80% of taxable income ), and charitable contributions.

9. Use Accountable Plans

Do you reimburse your employees for things like entertainment, travel, and other costs? If you do, you may want to use an accountable plan. Using an accountable plan allows you to deduct the expenses without reporting the reimbursements as employee income. In other words, it can reduce both your employment taxes and your overall taxable income.

As a bonus, using an accountable plan can also save your employees money on taxes. That’s because, under the new tax law, employees can no longer deduct miscellaneous unreimbursed employee expenses .

10. Abandon Property Instead of Reporting it as a Capital Loss

If your business owns property that has no value, you might be tempted to sell it and report it as a capital loss on your taxes. However, there are some benefits to abandoning it instead.

Abandonment of property allows you to take an ordinary loss, which is fully deductible, instead of a capital loss, which is subject to limitations. Keep in mind that a Section 1231 property may be ordinary or capital, depending on other Section 1231 losses for the year and prior losses.

11. Defer Taxable Income

Are you using cash-method accounting for your business? If you are, you can take advantage of that by carefully managing your business taxable income to minimize your taxes. If you anticipate that your business income will be taxed at the same (or lower) rate in 2023, here are a few tips to help you defer some of your income:

• Put recurring expenses on your credit card. You can deduct them in the current year even though you won’t pay the credit card bill until next year.
• Mail checks a few days before the end of the year. You can deduct the expenses in the year you mail the checks. If you’re mailing a big check, use registered mail so you can prove the mailing date.
• Prepay expenses at the end of the year , provided that the benefit does not exceed IRS limitations (the earlier of 12 months before the first date on which your business realizes the benefit or the end of the next tax year). For example, you could prepay your office rent or prepay some of your insurance premiums.
• Delay sending invoices until the last few days of the year. That way, you’ll receive payment in the new year and can report the income in the new year as well.

You’ll need to be cautious with the last strategy. Don’t delay sending invoices to customers who pay slowly.

12. Hire Your Spouse or Children

If your spouse or children can contribute to your business, then put them on the payroll . Kids can work tax-free if their income is below the IRS threshold. The Tax Cuts and Jobs Act of 2018 nearly doubled the exemption amount for dependent minors.

As a bonus, you can take the money you pay your kids and put it into an education savings account or Roth IRA. You also won’t need to withhold payroll taxes.

13. Evaluate Your Business Entity Type

The business entity type you choose significantly impacts your tax liability. As we mentioned earlier, people who are sole proprietors, have Limited Partnerships, or certain Limited Liability Companies are on the hook to pay self-employment taxes. Depending on how much you earn as a sole proprietor or as an employee of any pass-through entity, you may also have to pay the additional 0.9% Medicare tax.

If your estimated business taxes are high, then you may want to consider taking a step back and reorganizing your business as a different type of entity . For example, reorganizing an LLC as a C corporation has some tax benefits. Navigating the ins and outs of different business entity types can be confusing, so it’s beneficial to work with a tax professional to determine the appropriate structure for your business.

14. Write Off Bad Debts

As a business owner, you may sell products or services to customers on credit. For example, many companies invoice clients and give them 15 or 30 days to pay. When you have delivered goods and services, your instinct may be to continually try to collect them, but that’s not always the most advantageous approach for taxes.

As the end of the tax year approaches, you should review your accounts, including past due invoices and loans you may have made to employees or vendors, and consider whether they should be written off as bad debt . Writing these debts off can help you to offset what you owe on your taxes and reduce your overall tax obligation. It is important to note that this applies to accrual basis taxpayers only (see below).

15. Review Your Accounting Method

There are several accounting methods you may use as a business owner, and in some cases, you may have a choice about which method to use. The two most common methods are the cash method and the accrual method.

With the cash method, you must report any money you receive and any business expenses you incur in the year you pay them. This method is available to many small businesses, but businesses that have average receipts of more than $25 million for the past three years are not eligible.

The other option is the accrual method, which allows you to report income in the year it is earned and expenses in the year they are incurred. There are benefits to both methods, and you should consult with your accountant to determine which method best suits your business needs.

16. Check If You’re Eligible for Penalty Relief

Sometimes, despite their best efforts, business owners incur a penalty from the IRS. The penalty could be because they missed a tax filing deadline or underpaid their taxes, and in some cases, the penalties can be significant.

If you incur a penalty, it is worthwhile to see if you are eligible for penalty relief . Some circumstances that may be eligible for penalty relief include:

• Failing to file a tax return
• Failing to pay on time
• Failing to deposit taxes as required

You can check with the IRS or your accountant to find out if you are eligible for penalty relief. Often the IRS will remove the first penalty assessed to you.

17. Pay Down Your Debt

Payments you make for business expenses are not tax-deductible in most cases, but there is one exception: loan interest. If you have an outstanding business loan and cash on hand, you may want to make extra payments or even pay off the loan entirely so that you can deduct the interest when you file your tax return.

Keep in mind that the IRS does not allow an interest deduction for personal expenses paid with a credit card. You can view IRS Publication 334 for information about non-farm business interest deductions and IRS Publication 225 for information about interest deductions for farms.

18. Stay Updated on the Latest Small Business Tax Law Changes

In August of 2022, the Inflation Reduction Act was signed into law by President Joseph Biden. The law included some of the provisions that were originally part of Biden’s Build Back Better bill, which was negotiated and renegotiated throughout 2021 and into 2022.

For businesses, the most important part of that legislation is that there is now a 15% corporate minimum tax. Wall Street experts have evaluated the provision and concluded that the impact of it would be minimal since very few companies were paying less before the act’s passage.

It’s important to note that the 15% minimum tax applies only to the adjusted financial statement income of companies that pay more than $1 billion in profits to shareholders.

The Inflation Reduction Act also included a 1% excise tax to be imposed upon shares repurchased by companies after December 31, 2021. Earlier proposed changes to the Base Erosion and Anti-Abuse Tax (BEAT) and Global Intangible Low-Tax Income (GILTI) were not included in the final bill. We are always watching to see what happens with pending tax legislation, and as a business owner, you should be too.

19. Consult a Tax Advisor

One of the best things you can do as a small business owner to minimize the amount of tax you are required to pay is to consult a tax advisor. Even if you are someone who keeps a close eye on business news and stays up to date on tax law changes, you still need professional advice to help you file your taxes.

Business tax filings can be complex, and the penalties for mistakes or oversights can be high. Ultimately, paying for a tax advisor will be less expensive than trying to clean up the aftermath of a mistake with your taxes .

The AMT credit can help you avoid paying a higher tax rate by offering a dollar-to-dollar reduction on previous years' taxes. Check our blog post, Alternative Minimum Tax Explained  to find out how this works.

Small Business Tax Planning FAQ

Here are a couple of questions that we often hear from clients about small business tax planning.

How Much Does a Small Business Pay in Taxes?

This is a frequently asked question because people want to know how much they will need to pay, so they can prepare and be sure to have the money they need to meet their tax obligations.

The short answer is that every small business is unique, but we can still give you some idea of what to expect. The Small Business Administration released figures that showed an average of 19.8% as the effective tax rate for small businesses. The percentages can vary depending on your business structure and other factors.

There are five basic types of taxes that business owners may need to pay. They are as follows:

• Self-employment tax
• Estimated tax
• Employer tax

The Tax Cuts and Jobs Act of 2017 changed the tax code for corporations. As of January 1, 2018, C corporations have a flat corporate income tax rate of 21%. This rate does not apply to other business structures. You should keep in mind that if you have a sole proprietorship or partnership—and in some cases, an LLC—you may need to pay self-employment tax.

Why is Tax Planning Important for Small Businesses?

As a business owner, paying taxes is your obligation, but the amount you owe should never be a surprise. It’s essential to understand how business taxes work and estimate the amount you need to pay each quarter or year to ensure that you have the appropriate amount of money.

Tax planning is something that can help you make accurate tax estimates, make all tax filings and reports on time, and avoid the potential repercussions of not doing so. As business taxes can be complicated, we recommend working with an experienced tax professional to help you with tax planning. You should also know that tax planning is often the best way to find tax savings.

Final Thoughts on Small Business Tax Strategies

Calculating, filing, and paying your business taxes can be a time-consuming and expensive endeavor. The 19 tax strategies we have reviewed here can help you understand your tax obligations and minimize your tax burden as you head into 2023.

Do you need assistance planning your income tax strategy ? CMP can help create an excellent tax plan for you and your business.

About Ashlyn Rodeback

As a Cache Valley native from Smithfield, Ashlyn graduated with both her bachelor’s and master’s degree in accounting with a specialization in taxation from Utah State University. Ashlyn’s primary focus is on individual and business taxation and providing clients with bookkeeping and payroll solutions. She is passionate about working with clients and helping them with their accounting, tax, and payroll needs. When not in the office helping clients, she can be found with her husband Keenan, traveling, kayaking, or watching a good show.

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Small-Business Tax Changes and Tips to Know in 2023

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Tax season brings rule changes for business owners, and this year is no different. For instance, you can deduct 100% of what your business spent at restaurants in 2022 on your taxes this year. But in 2023, that figure will return to 50%. 

What never changes, experts say, is the need to keep accurate records and work with a tax professional you trust. 

"Business owners are oftentimes viewing their financial record-keeping as the last thing to do on the list. And they do it themselves, and they do it at night over a cup of coffee while they're watching TV," says David Levi, a certified public accountant and managing director at CBIZ, a tax, accounting, insurance and HR firm with offices across the United States. 

"[But] you don't know what you don't know. And the one thing that's certain in the tax world is change," Levi says.

Here are some key rule changes and deadlines to note as you file your 2022 taxes and plan for 2023. 

Find out whether you can still claim the Employee Retention Tax Credit

The Employee Retention Tax Credit — a policy meant to encourage business owners to keep staff during the COVID-19 pandemic — applied only to wages paid before Oct. 1, 2021, so you can't claim it on your 2022 tax return. 

But there's still time to amend your 2020 and 2021 returns to claim the ERTC, which was worth up to $7,000 per quarter per employee while it was in effect. You can generally amend tax returns within three years after filing your return.

"It's probably one of the most powerful credits that I've seen in my 30 years with the [Internal Revenue] Service," says Eric Hylton, the national director of compliance for Alliantgroup, a tax consulting firm, and former IRS commissioner for the Small Business/Self-Employed Division.

You might qualify for the ERTC if your business was ordered to fully or partially close in 2020 or 2021, or if your revenue compared to 2019 decreased by more than 50% in 2020 or more than 20% in 2021. 

Talk to a tax professional about whether you qualify. Hylton notes, too, that there were "significant delays" in processing ERTC applications last year. 

Prepare for bonus depreciation to begin fading out this year

From mid-2017 until the end of 2022, business owners who bought costly equipment could claim 100% of the asset's bonus depreciation — which is usually spread out over the life of the equipment — in the same year they bought the asset.

That provision is going away unless Congress extends it. In 2023, bonus depreciation falls to 80%. It drops an additional 20% each year after that. 

"People have been of the mindset that, 'you know, if I go out and I buy a piece of equipment, or I go out and I spend something on my real estate, that's going to be completely capitalizable; I might be able to take 100% bonus [depreciation],'" Levi says. "That's not the case, [in 2023] it's 80%." 

Look into starting a retirement plan for your employees

Businesses with up to 50 employees can now claim a tax credit for 100% of the cost of starting a retirement plan , up to $5,000. You can also claim a credit for up to $1,000 in employer contributions to each employee's plan. 

The tax credit phases out for businesses with 51 to 100 employees. It previously covered 50% of retirement plan startup costs. 

"If a business owner is on the fence [about] whether they should start a 401(k) or retirement plan, some of these credits could push them over the decision point," says Janel E. Carroll, a CPA and certified financial planner at Truepoint Wealth Counsel in Cincinnati. 

Plan a tax- and energy-efficient renovation 

If you've been thinking about going green , 2023 might be a good time from a tax perspective, Hylton says. The Inflation Reduction Act, signed into law in August 2022, included several tax credits and business deductions. 

One change increased the size of the Energy-Efficient Commercial Buildings Deduction, allowing business owners to claim larger deductions per square foot of renovation if their projects qualify. In addition, tax-exempt organizations such as charities and religious institutions can now claim these deductions, too.

On top of that, in 2023, businesses can claim a tax credit of up to $7,500 when they purchase electric or fuel cell electric vehicles. For vehicles larger than 14,000 pounds, the credit can go up to $40,000. 

Hylton encourages business owners to "probe your CPA or tax practitioner on some of these other credits [to see] whether your business actually qualifies" for these tax benefits. 

Get ready for a more robust IRS 

The Internal Revenue Service has announced plans to hire 4,000 phone support staffers and 700 in-person support staffers for the 2023 tax season. It's the result of a funding boost meant to help the agency provide better customer service and expedite processing times, Hylton says.

When waiting for a refund or tax credit, "time is money," Hylton says.

While Hylton notes that a better-staffed IRS may also result in a "slight increase in audits," he and Carroll don't think most business owners need to worry. 

"I think the focus is going to be on customer service — and based on the wait times that we have when we call the IRS, that's definitely where the need is," Carroll says.

On a similar note...

Maximize Your Tax Refunds: 6 Smart Tax Planning Tips for Small Businesses

#1. Take advantage of every deduction possible

• #2. Contribute to a retirement plan
• #3. Utilize the Section 179 deduction
• #4. Keep an eye out for tax credits

#5. Optimize your tax structure

#6. delay payments until next year, good record-keeping is the key to effective tax planning, tax season can be a scary time for unprepared businesses. these tips will make it as smooth as possible for this year and next..

Many small-business leaders find themselves consumed with endless paperwork and meetings with tax experts when the time for tax filing comes around. If you have a trusted tax accounting firm by your side, the scare of the tax season may be somewhat subdued. But even then, you may be anxious if you’re using every possible benefit to reduce tax obligations. 

Focusing on a few strategies and contracting the right professionals to file your taxes can help you save all that’s possible. 

With the help of several seasoned CPAs and entrepreneurs, we get you six solid small business tax planning strategies. These will help you salvage benefits this tax season and make sure the next one goes even smoother.

Keep in mind that this is not a step-by-step manual on how to prepare or file your taxes. These tax planning tips are commonly availed benefits listed by different experts. We assume that you already know the basics:

All the income and expense information from your business.

All of the tax forms you need from the IRS (if your accounting software can't handle this part for you, it's time to upgrade ).

Your deadlines for filing. [ 1 ]

If not, talk to a local tax expert to get everything in order. Discuss the potential for your business to avail these strategies with your accountant.

One of the best ways to reduce your overall tax bill is through small business tax deductions. But note that deductions are tricky—if you don't do them right you can get audited.

What are tax deductions?

Tax deductions, also known as tax write-offs, are like discounts on your income that reduce the amount of your income that is subject to taxes. They can potentially drop you into a lower tax bracket, resulting in less tax owed.

If you operate your business to turn a profit, each essential expense you incur can potentially lead to substantial tax savings. To know if an expense is tax-deductible, you should have a good understanding of what is considered a business expense in the eyes of the IRS. The expenses you deduct should:

be made for business (not personal),

be necessary, useful, and relevant in your industry, and

ordinary (commonly accepted in your industry).

Here's a list of nine small-business tax deductions to give you an idea of deductions you may be missing out on:

Home office deductions are something many small businesses miss out on. Even though employees can no longer deduct home office expenses [ 2 ] , small business owners still can. If you have a dedicated space in your home used exclusively for your business, you can deduct expenses related to that portion of your home.

CPA Jeffrey S. Levine [ 3 ] says that fear of an audit prevents many small businesses from taking deductions that they deserve.

"Making incorrect assumptions, such as not deducting a home office or not realizing other items, such as health insurance may be deductible... the biggest danger in that is paying more tax than necessary."

Jeffrey S. Levine

Tax planning for this year

It’s always recommended to work with a tax professional to understand how these deductions apply to your specific situation.

One of the biggest advantages of working with a professional is finding deductions that you never knew existed. You can—and should—deduct every expense related to running your business: from a home office to mileage on your car to research and development costs. In fact, nearly half of small-business owners rely on full-time support from accounting firms to keep up with tax compliance. 

Get help with small business tax breaks you are entitled to while staying compliant with the law.

#2. Contribute to a retirement plan 

Multiple CPAs recommend tucking away any surplus cash into a simplified employee pension individual retirement account (SEP IRA).

“A business of any size, even self-employed, can establish a SEP," according to the IRS.

The easiest way to set up your SEP IRA is through your bank, insurance company, or other financial institution like an online investment firm.

"Retirement contributions are put in tax free and removed from your taxable profit. So, not only is setting up a retirement plan a great way to save for your own future, but it also helps you save on taxes in the present. Any small-business owner not doing this is missing out."

Stacy Caprio [4]

Small-business founder, Her.CEO

Savings incentive match plan for employees, or SIMPLE IRA is another retirement saving option for small businesses with fewer than 100 employees. In SEP IRA, employees can’t make contributions for themselves, but in SIMPLE IRA, both employees and employer can contribute and take tax benefits. Remember that: 

Your contributions to your own retirement account should be reported on your personal tax return.

Your contributions to your employees’ accounts should be reported on your business’s tax return since your contributions to employee SEP-IRAs are a part of your business’s income.

In addition to these two, there are other retirement investing options, such as solo 401(k)s, available from IRA. Connect with a CPA to learn about the plan best for you.

#3. Utilize the Section 179 deduction 

All businesses need equipment: whether it’s office furniture, supplies, vehicles, machinery, software, or other tangible items. You could purchase any number of these items throughout the year and may do so repeatedly. It allows a business to deduct the cost of qualifying purchases, making this a great time to invest in your business.

Recently, it was expanded to allow improvements made to nonresidential property, such as roofs and systems for heating, security, and fire protection.

Consulting an accounting expert at the beginning of the year will help you find ways to reduce your tax burden with wise business purchases and activities that yield deductions.

Do an internal audit to determine which expenses you've missed out on in the past that you can take advantage of this year. To do so, keep track of everything throughout the year, and separate business expenses from personal ones. This is an area where expense tracking functionality (included in most accounting software) is incredibly helpful.

Share that information with a tax professional to find the tax benefits that may apply to you. They’ll ask questions about your business based on current tax provisions to position you favorably for all eligible deductions.

#4. Keep an eye out for tax credits 

Tax credits are different from tax deductions. In fact, one expert we talked to says they're better than tax deductions:

"Tax credits reduce your potential taxes on a dollar-for-dollar basis while deductions reduce your taxable income so their net effect is savings equal to your tax rate. From a tax perspective, credits are more valuable than deductions."

Sarah Hancock [5]

Chief editor, Best Company

In other words, tax deductions lower your overall business income on which you’ll pay taxes, while tax credits directly reduce the amount of tax you owe on your business income. Common tax credits to look out for include:

Disabled access credit: For small businesses that make their business accessible to persons with disability.

Work opportunity tax credit (WOTC): For employers who hire individuals from certain targeted groups who have consistently faced significant barriers to employment.

Family and medical leave credit : For employers who provide paid family and medical leave to their employees.

Energy efficiency credits: For businesses that use renewable energy or promote energy efficiency.

Research and development (R&D) tax credit: For in-house and contract research expenses spent for the purpose of discovering information.

For a complete list of business tax credits for small businesses, check out this resource [ 6 ] from the IRS. Note that tax credits may also carry forward from prior years.

Review the list of business tax credits and target those that make sense for your business and you aren't already taking advantage of.

Your tax software or tax advisor can walk you through the process of redeeming your earned tax credits when you file a tax return (assuming, for instance, you have earned the credit by purchasing an electric vehicle or providing childcare facilities).

The choice of tax structure is one of the most important decisions you’ll make as an owner to optimize your tax dues. 

Depending on your business structure, you have various tax filing options: 

If you’re registered as a corporation, you can file taxes as an S-Corp or C-Corp (check the table for more).

If you’re an LLC, you can file taxes as an S-Corp, C-Corp, sole proprietor, or partnership.

Elect the tax structure that can benefit you the most. For instance, if you own a sole proprietorship, partnership, or S-Corp, you can deduct up to 20% of your business income from tax computation under the qualified business income deduction (QBID) rule. On the other hand, income earned through a C-corporation route is not eligible for QBID deduction.

“Sometimes, remaining a sole proprietor for tax purposes—meaning that you simply report your business income on your personal tax return—is the most advantageous route. The extra administrative costs of having your business taxed as an S corporation may not outweigh the tax savings. This is why it's important that you get personalized tax advice from a qualified tax professional.”

Logan Allec [7]

The choice of tax classification isn’t always straightforward. Most small businesses start off as sole proprietors or partnerships. But if you earn active income (say by selling stuff online, providing legal services, or having a store) and not passive (say earning real estate rentals) and getting upward of $40,000 in net profit, according to many CPAs, electing for an S-corporation status may be the best option to save taxes.

If you are confused about which tax structure you should file under, consult a tax professional and let them know what industry you’re in and your daily business activities.

If your business uses the cash accounting method (which most small businesses do), you recognize income when you receive it and expenses when you pay them. By delaying payments owed to you until after December 31st, you effectively push that income into the next tax year. This approach can lower your taxable income for the current year, thus reducing your tax liability.

When it’s the end of the year, there’s very little of what you can do to offset a big income coming your way. Deferring it to the next year will give you enough time to plan for taxes. Let’s say you're an independent service provider, and you're due to receive a significant $2 million commission near the end of the year. You could ask your client to hold off on paying you until after December 31st, deferring that income to the next tax year. 

Keep in mind that this strategy won't reduce your overall tax obligation—it merely defers it. However, if you expect to be in a lower tax bracket next year, need more time to plan, or if you anticipate tax rates to drop, this could result in actual savings.

Expecting a significant income toward the year’s end? Talk to a CPA or a tax professional to know if delaying those big payments to roll into the next year is a smart strategy for your specific situation.

They’ll also guide you through other ways to offset that sizeable income, say by making certain business-related purchases, contributing extra to your retirement account, or taking advantage of tax credits or deductions discussed above.

Ideally, tax planning is something that should be woven throughout your business lifecycle. Every time you make a sale, invest in new equipment, or even hire a new team member, you’re making a financial decision that has tax ramifications. 

If you’ve gotten by somehow this year, the soundest advice we can offer when it comes to preparing and planning your small-business taxes is to use accounting software early, and often.

Accounting software, when paired with a good tax services provider , keeps all necessary records in one place, offers all the tax forms you'll need, and helps you take advantage of every possible deduction and credit.

Tax law is complicated and ever-changing, and small-business leaders need to be ready when tax time rolls around to make sure they're not paying the government more than they owe, or worse yet—unwittingly committing tax fraud.

“You could find yourself subject to penalties and interest from underpayment of taxes. This can come from either error in preparation of the return or failure to make the required estimated payment.”

Steve Hocheiser [8]

You may be thinking that you can save some money by doing your taxes yourself or skimping on accounting software, but isn't the peace of mind that comes from knowing your taxes were done accurately worth a modest investment?

Schedule a free tax consultation with a local accounting firm to see how they can help with your tax filing, bookkeeping, or payroll needs.

Note: This article is intended to inform our readers about business-related concerns in the United States. It is in no way intended to provide financial advice or to endorse a specific course of action. For advice on your specific situation, consult your accountant or financial consultant.

Tax Calendars , IRS

Deducting home office expenses , AICPA & CIMA Journal of Accountancy

Jeffrey Levine , LinkedIn

Stacy Caprio , Linkedin

Sarah Hancock , LinkedIn

Business Tax Credits , IRS

Logan Allec , LinkedIn

Steve Hocheiser , LinkedIn

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About the author.

Amita Jain is a senior writer for Capterra, covering finance technology with a focus on expense management and accounting solutions for small-to-midsize businesses. After completing her master’s in policy studies from King’s College London, she began her career as a journalist in New Delhi, India, where she garnered first-hand knowledge of the startup space and the education sector. She spent nearly half a decade covering high-level events hosted by the United Nations and the Government of India. Her work has been featured in Gartner and Careers360, among other publications.

When she’s not contemplating tech solutions for SMBs, Amita finds her zen in swimming, doodling, and indulging in animated sitcoms and science fiction.

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Business year-end planning tips

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• Modified Oct 17, 2023

The Inflation Reduction Act of 2022 greatly complicates tax filing and planning in the near future. While most small businesses will still benefit from the usual practices—accelerating and bunching deductions to minimize taxes while deferring income—higher-income businesses that expect increased revenue next year may find these strategies ineffective.

Generally speaking, these businesses can benefit from the opposite strategy: pulling 2023 income to be taxed at lower rates while deferring deductible expenses into 2024. Tax professionals should consider the following procedures:

Cash method accounting

More businesses are now allowed to use cash method accounting, rather than the accrual method, allowing for greater flexibility in accelerating or holding off payments. Any taxpayer can qualify as a small business if they satisfy a gross receipts test; however, for 2023, this requirement is satisfied if average annual gross receipts do not exceed $26 million over a three-year testing period. The benefits of being a cash basis taxpayer is that you only pay taxes on the money that you actually receive as income and actually pay out as expenses.

Accrual method accounting

On an accrual basis, you pay taxes on the money that is owed to you, whether you received it. On a similar note, you are able to get a deduction for amounts you are due to pay out.

There are some businesses that may benefit from the accrual method of accounting. Some circumstances where this could be applicable are businesses that do not have large accounts receivables, but could have large accounts payables. For example, restaurant clients do not have a large amount of accounts receivable because a majority of the income comes from customers who walk in the door on a daily basis. However, these clients will have a lot of bills they can defer to pay after the close of a tax year. They are also able to claim a tax deduction for when the bills are received.

You choose an accounting method when you file the initial tax return. If a change is to be made in the future, you must generally get IRS approval by filing Form 3115 , Application for Change in Accounting Method .

Expenditures and asset purchases

Businesses should consider purchasing certain items before the end of 2023, especially depreciable property that falls under Section 179 business property expensing. This includes computer software, interior renovation (but not enlargement), elevators, escalators, roofs, HVAC, fire protection, alarms, or security systems. Beginning in 2023, the Section 179 expensing limit is $1.16 million and the investment ceiling limit is $2.89 million. In addition, if machinery and equipment were purchased and placed in service this year, businesses can also claim an 80% first-year depreciation deduction.

The de minimis safe harbor election (or book-tax conformity election) can also be used to expense lower­ cost supplies or materials if they are not capitalized under UNICAP regulations . If you have an applicable financial statement (AFS) you may use a safe harbor to deduct amounts paid for tangible property up to $5,000 per invoice or item (as substantiated by invoice). Or if you don’t have an AFS, you may use the safe harbor to deduct amounts up to $2,500 per invoice or item. To claim the de minimis safe harbor election, you must attach a statement titled “Section 1.263(a)-1 (f) de minimis safe harbor election” to the timely filed original federal tax return, including extensions for the taxable year in which the de minimis amounts are paid.

Timing debt cancellation, NOLs, and disposition of passive activity

Depending on the proportion of income and losses between 2023 and 2024, corporations should employ strategic timing. For example, delaying debt-cancellation events until 2024 can reduce 2023 taxable income, while 2024 income can be accelerated to create smaller net income in 2023 in anticipation of a small net operating loss (NOL). This avoids taxation on 100% of increased income the following year.

The disposition of any passive activities and the resulting suspended losses-should also be timed properly. For example, 2023 income can be reduced by disposing of the passive activity before year-end. On the other hand, delaying the same disposition until 2024 can help offset potential top rate increases.

Editor’s note: Check out a similar article focusing on individual year-end planning tips .

Previous Post

Individual year-end planning tips.

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The Intuit® Accountants team provides ProConnect™ Tax, Lacerte® Tax, ProSeries® Tax, and add-on software and services to enable workflow for its customers. Visit us at https://proconnect.intuit.com, or follow us on Twitter @IntuitAccts. More from Intuit Accountants Team

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The 10 Essential Tax Planning Tips for Your Business

Are you familiar with the feeling of finding yourself with a huge tax balance and wondering, "Was there really nothing I could have done about this?" Well, now is your time to act! Read on for tax-saving strategies to implement before 2023 comes to a close.

Year-end tax planning is the practice of trying to maximize tax returns, avoiding tax penalties, and make the most of any possible tax deductions. Tax planning reduces your tax liability by employing effective strategies that explore ways that not only decrease taxes but, in some cases, secure a more solid future and retirement. Whether you earn $50,000 annually or $500,000:  proper tax planning can be beneficial for everyone.

There are a number of tax strategies out there that can help reduce your tax balance. Following is a brief guide on some options that you can benefit from:

1. Electing to be treated as an S-Corporation

• If your business is currently a C Corporation, you may want to consider switching to an S Corporation. Although a C Corporation is taxed at 21%, which may be less than your personal tax bracket, you will be paying taxes again when the corporation issues dividends. With an S Corp, you generally do not pay taxes on distributions, plus you can use your personal deductions to offset your tax balance.
• While on the topic of S Corporation - now is a good time to review whether you are taking out a reasonable salary as required by the IRS.

2. Health Insurance Expenses

• Employers can offer company health insurance where the employees can choose to opt in. They will get a pretax deduction on their paycheck, and the employer pays a portion of the cost as a business expense.
• Self-employed individuals can deduct 100% of their insurance expenses on their personal tax returns even without 'itemizing' their tax returns. (However the insurance cost will still be subject self-employed taxes)
• Cash basis filers calculate income based on when they actually receive the money or when the money leaves their account.
• Review and pay your open bills. This can be beneficial since you will be able to pick up the expenses in the current year.
• Prepay expenses for up to 12 months, using the IRS Safe Harbor for up to 12 months. Examples include expenses such as lease payments, rent, and insurance premiums.
• Stop billing customers - If possible, try to push off getting paid in December and wait for January. (Make sure to only use it with clients that you know are going to pay you)
• Be aware of "Constructive Receipt" - this applies when a business has access to utilize the funds that are received for goods and services despite the funds not being physically received or deposited. In this case, you will need to pay taxes on the income.
• An accrual basis filer is a business set up to track and record money they will earn or spend in the future as soon as the deal is made, using the date of the invoice or bill, not when they actually get or pay the money.
• Therefore, ensure that all bills with dates prior to year-end are entered and dated correctly so the expense can be picked up in the current year. 

5. Use your Credit Cards to pay your business expenses

• Do you have business expenses that need to be paid but don't have the available funds in your bank? Use your credit card. Using your credit card before year-end will allow you to use those expenses even if your credit card balance is unpaid. This works for both cash-basis and accrual-basis filers as well. (This can be an issue for some S-corps, so you might want to discuss it with your accountant).

• Do you have old computers in the office that needed to be replaced for a while but have been pushing it off? Now is a good time to buy them! The IRS allows businesses to take an immediate deduction by taking the "bonus deprecation" and making the "section 179" election for business expenditures related to some depreciable assets. This allows a business to lower its current year's tax balance rather than depreciating it over time.
• In order to utilize this bonus depreciation, it needs to be placed in service before year-end.
• Want to learn more about claiming your car as a business expense? Read this post .
• Bonus depreciation for 2023 is 80% . It will drop to  60% in 2024, 40% in 2025, and 20% in 2026 . After 2026, the deduction will no longer be available
• If you occasionally have your kids working for you, you may want to consider adding them to payroll. They will not pay federal income taxes on the first $13,850 in 2023, and state taxes will likely be very low. In turn, this will save you income taxes on $13,850.
• If you are a sole proprietor, or you and your wife have a partnership, you can save even more taxes. If your kids are minors, you and your kids won't need to pay Social Security and Medicare taxes, which will save you an additional 15.3%.
• Check this article to learn more.
• 750-Hour Rule - You will need to have a log of 750 hours per year.
• More Than Half of Professional Time in Real Property Businesses : In addition to the 750-hour requirement, you must spend more than half of your personal service work hours in real property businesses in which you materially participate. 
• Material Participation : Once you satisfy the real estate professional test, you will need to determine if the taxpayer is materially participating in rental activity. Material participation means being involved in the operations of the activity on a regular, continuous, and substantial basis. The IRS has seven tests to determine material participation, and you must meet one to qualify. 
• Quick background; The QBI deduction allows you to deduct 20% of your taxable income; however, this will get phased out based on your income. ($364,200 for joint filers in 2023). Once you reach the threshold, your ability to claim the pass-through deduction gets limited by 50% of payroll and you might not get to enjoy the full 20% tax break. Therefore, in order to qualify based on payroll, you should increase your wages.
• The formula for a wage increase for QBI is as follows: take the business net income > add back payroll > calculate it by .285, and you'll get the total wages to maximize on QBI. Note that if there are any losses on the personal tax return, which would decrease the AGI, the QBI will be calculated on the lesser of business income or AGI. But this is a good start.
• Pensions are a great way to put away money for retirement while also serving as a business expense . You can invest the money from the pension, and since it's tax-deferred, the money grows faster as there isn't anything eating away at it.
• There are 3 types of business retirement plans. 1 IRA-based plan such as a SEP IRA, 2 Defined contribution plans such as a 401(K), and 3 Defined benefit plans.
• Check this blog post for a summary of how a pension can help you save on taxes .

Looking for more tax savings tips? In this article, we discussed more tips that you can implement on your personal tax return .

Disclaimer: This article was written in an oversimplified manner designed to help you as a business owner. You should discuss this with a tax professional prior to implementing these strategies.

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IRS Tax Tip 2023-108, Sept. 5, 2023

Starting a new business can seem overwhelming for new entrepreneurs or even seasoned professionals. The IRS has resources to help new business owners understand the tax responsibilities of running a business.

Here are a few things any entrepreneur needs to do when starting their business.

Choose a business structure

The  form of business  determines which income tax return a business needs to file. The most common business structures are:

• Sole proprietorship : An unincorporated business owned by an individual. There's no distinction between the taxpayer and their business.
• Partnership : An unincorporated business with ownership shared between two or more members.
• Corporation : Also known as a C corporation. It's a separate entity owned by shareholders.
• S Corporation : A corporation that elects to pass corporate income, losses, deductions and credits through to the shareholders.
• Limited Liability Company : A business structure allowed by state statute. If a single-member LLC does not elect to be treated as a corporation, the LLC is a "disregarded entity," and the LLC's activities should be reflected on its owner's federal tax return as a sole proprietorship.

Choose a tax year

A  tax year  is an annual accounting period for keeping records and reporting income and expenses. A new business owner must choose either:

• Calendar year : 12 consecutive months beginning January 1 and ending December 31.
• Fiscal year : 12 consecutive months ending on the last day of any month except December.

If an individual files their first tax return using the calendar tax year and later begins business as a sole proprietor, becomes a partner in a partnership, or becomes a shareholder in an S corporation, they must continue to use a calendar tax year unless they get IRS approval to change it or meet one of the exceptions listed in the  instructions to Form 1128, Application To Adopt, Change, or Retain a Tax Year .

Apply for an Employer Identification Number

An  EIN  is also called a Federal Tax Identification Number. It's used to identify a business. Most businesses need one of these numbers, but some don't. For example, a sole proprietor without employees who doesn't file any excise or pension plan tax returns doesn't need an EIN. The EIN checklist on IRS.gov can help business owners know if they need an EIN.

It's important for a business with an EIN to keep the business mailing address, location and responsible party up to date. EIN holders should report changes in the responsible party to the IRS within 60 days.

Have all employees complete these forms:

•  I-9, Employment Eligibility Verification U.S. Citizenship and Immigration Services PDF
•  W-4, Employee's Withholding Certificate

Pay business taxes

The form of business determines what  taxes should be paid  and how to pay them.

Visit the state's website

Prospective business owners should visit  their state's website  for info about state tax requirements.

Subscribe to IRS Tax Tips

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Business Planning: Taxation

In the Business Planning: Taxation exam, you will apply technical knowledge and professional skills to identify and resolve taxation issues that arise in the context of preparing tax computations and to advise on tax-efficient strategies for businesses and individuals. The exam is 2.5 hours and will consist of three questions covering a range of taxes as well as tax planning. The exam is available in March, June, September, and December. You have a maximum of four attempts at this exam.

Exam guidance

We are here to support you throughout your ACA journey to ensure you have everything you need for your upcoming exam, from exam resources to free and confidential wellbeing support from CABA. Ensure you are fully prepared by reading our exam guidance  prior to your exam.

Exam preparation

The syllabus presents the learning outcomes for each exam and should be read with the relevant technical knowledge grids and, where applicable, the skills development grids.

Practice software

It's important that you get to know the exam software and its various functions before you take an exam. To help, we have created an online only practice exam software.

Visit icaew.com/examsoftware  to access the question banks and mocks in the practice exam software.

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Exams and marks plans

Use past exams in addition to the blank practice software where you can practise answering questions. The marks plans will help you check your answers.

Some past exams are used within our learning materials, they are updated to be in line with the examinable syllabus. The majority will appear in the published question banks, and some may be used in mock exams.

Important information for exams 2024

Following the Chancellor’s announcements relating to Class 1 primary National Insurance Contributions in the Autumn Statement (23 November 2023), we can update you as follows in relation to learning materials and the approach for ICAEW Tax exams during 2024.

All students will be expected to answer exam questions based on the information in the 2024 learning materials.

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Use the planner  to plan ahead and keep organised throughout the year. Schedule in all the key dates and deadlines for your exams and record the days you plan to study.

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• Business Tips

Small Business Tax Planning Tips

• November 30, 2021

Did you know that tax planning for your small business can help reduce the taxes that you owe? When you’re looking to grow your business , tax planning plays an important part in shaping your overall vision.

Unlike tax preparation – when you get your taxes ready for quarterly or year-end filings – tax planning means thoughtfully considering the deductions and credits that your business can take throughout the year to help lower the amount of taxes you pay. In addition, tax planning helps you understand what you need to file and what records to keep.

With help from a certified public accountant (CPA) or tax advisor, small business tax planning can lead to big savings for your business. John Bevilacqua, CPA and partner at The Bonadio Group , an accounting and financial consultant group with locations across New York State, shared his knowledge and expertise to help small businesses like you get the most out of your tax planning process. Here’s what he had to say:  

When it comes to tax planning, what mistakes do small business owners commonly make?

Small business owners often wear many hats when operating their business. They’re in charge of marketing, product development, management of staff, accounting, etc. The small business owner is so busy working in their business they have little time to work on managing their business.

One of the most common mistakes made by small business owners when it comes to tax planning is treating it as a post-year-end exercise. Many do little tax planning before year-end and that results in no real opportunity to impact their taxable income . This is especially true for cash-based taxpayers where the timing of cash receipts and vendor payments can significantly impact current year earnings. For example, if your business is a cash basis taxpayer, you can deduct prepayment of expenses as long as you do not exceed 12 months or beyond the end of the following tax year.

Small business owners also often fail to recognize that there are other important compliance requirements related to their business. These include the need to register as a sales tax vendor, preparation of annual forms 1099-MISC for their vendors, and appropriately distinguishing between employees and subcontractors. If your business doesn’t appropriately comply with the requirements related to the above matters, you can be exposed to significant tax liabilities.

What are some small business tax tips?

Tax planning isn’t a one-time activity that you do for your business once a year. There are many actions you can take throughout the year to ensure you’re in good shape when it’s time to work on your taxes.

• Most importantly, keep good financial documents and reconcile your bank accounts on a monthly basis. Consider using QuickBooks or Peachtree software to maintain accurate and clean financial records. By keeping good records, you will have an accurate snapshot of your business to use as a basis for any tax planning strategies or decision making you may be considering. It will also help you develop strategies to address issues related to inventory, staffing, and more.
• Seek out a good certified public accountant (CPA) or tax advisor to address tax questions or concerns throughout the year. Meet on a quarterly or semi-annual basis to uncover effective tax-planning strategies for your business. If you’re not already working with a CPA, know that this type of expert can act as an integrated part of your small business team beyond tax season. They can help with financial planning, estate planning, business succession, and other accounting services. Ask your fellow business owners for recommendations and referrals and be sure to check references to find the best fit CPA for your business.
• Don’t make a big purchase for equipment or vehicles for the sole purpose of tax savings. Consider if the purchase improves your process and impacts efficiency and profitability.

What are common deductions for small businesses?

Almost anything that supports the ordinary and necessary operation of your business is tax-deductible. Common deductions include the cost of goods sold, wages and taxes, occupancy cost, marketing, insurance, and travel and entertainment expenses.

It’s crucial to maintain proper records to substantiate business expenses and prove they were business-related. For example, entertainment expenses should detail who was there and what business was discussed – these details will be needed if and when there is an audit. With company vehicles, you will need to log the mileage related to business travel as you or your employees use the vehicle.

In all your business tax deductions , be sure you can prove that the cost was for a business expense. Simply providing a copy of the check that paid for an expense or a credit card statement that shows the purchase is not enough. You will need to maintain the original vendor invoice or other proof that shows what the purchase was for. Always get a receipt, especially when paying in cash.

Does business structure affect the taxes you pay ?

Your legal business structure will affect how you are taxed. Sole proprietorships, partnerships, limited liability companies (LLCs), and S or C corporations, and nonprofits all have different obligations for taxes and liabilities. Each structure also has its own pros and cons. Get in touch with your accountant and/or attorney to determine which type of structure is the best fit for your business. Consider your current and future business needs.

You can compare the differences and details on taxes for each structure on the SBA website . Remember, your legal structure is a major decision and should not be made without input from a tax and legal expert.

Smart tax planning can lower the amount of taxes that you owe. But the process offers far more long-term benefits as well. Tax planning is an ongoing process with important action items to take throughout the year. To get the most out of it, meet with your CPA or tax advisor throughout the year and be prepared for your meetings. Bring your current financial statements, and share your ideas about upcoming purchases, staffing, or other changes. This will enable your CPA or tax advisor to help you plan to save now and in the future.

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Tax changes small business owners should be aware of as the tax deadline looms

FILE - A cash register is seen on the front counter at the Alpha Shoe Repair Corp., Feb. 3, 2023, in New York. As Tax Day, April 15, approaches, there are plenty of things small business owners should keep in mind when filing taxes this year. (AP Photo/Mary Altaffer, File)

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As Tax Day approaches, there are plenty of things small business owners should keep in mind when filing taxes this year.

April 15 is still the annual tax deadline for many small businesses although, unlike individuals, small businesses can have varying deadlines depending on the type of company, the state the taxes are filed in, and other factors. Quarterly estimated tax payments are generally required throughout the year. And certain types of small businesses had to file by March 15.

Since business tax filing is complex, most experts recommend small business owners work with a professional tax adviser rather than trying to file on their own or even with tax-filing software.

“Taxes should not be scary, especially when you have a certified tax professional or someone who is your trusted adviser,” said Amber Kellogg, vice president of affiliate origination and management at business consultancy Occams Advisory. “I always say you don’t go to the dentist to get your oil changed, and you certainly shouldn’t do (taxes) yourself unless you’re an expert.”

But even if small business owners aren’t filing taxes themselves, it’s still important to stay informed about any tax changes during the year. Here are things small business owners should consider as the April 15 deadline looms.

Consider an extension

Because of some pending tax legislation in Congress this year, Mitch Gerstein, senior tax adviser at accounting firm Isdaner & Co., said it might be a good idea to file for an extension. When you file an extension you still pay estimated taxes, but final paperwork isn’t due until September.

This gives your tax provider adequate time to file a return. And it’s cheaper to file an extension than an amended return, which costs more in administrative fees.

One reason Gerstein recommends an extension this year: a bonus depreciation write-off used by many small businesses is set to decrease for 2023. The bonus depreciation allowance was designed to spur capital purchases and it let businesses write off 100% of certain new and used assets in 2022. But beginning in 2023, that will decrease to 80% for used assets, dropping another 20% each year thereafter. However, a tax bill pending in Congress could restore the write-off to 100%. It’s rare that there is such a significant tax bill pending in Congress when taxes are due, Gerstein said.

Optimize your retirement plan

The Secure Act 2.0 passed by Congress in late 2022 gives small businesses some tax advantages if they offer a retirement plan. There’s a tax credit for small businesses starting new employee plans. The credit is up to 100% of the startup costs for adopting and maintaining a new 401(k) plan, capped at $5,000. There’s also a tax credit based on employer contribution, up to $1,000 annually per employee, over the plan’s first five years.

Changes in research and development write-offs

Scott Orn, chief operating officer of Kruze Consulting, works with startups backed by venture capital. Orn said the number one concern his clients are calling about is “Section 174,” a part of the tax code that involves writing off research and development costs.

In the past, companies were able to deduct 100% of research and development expenses from their taxable income. That was helpful because often that deduction meant the company was operating at a loss and wouldn’t have to pay taxes.

But starting in 2022 due to new legislation, companies have had to “capitalize” the expense – or spread it out over several years. That means they must now write off the expenses over five years for U.S.-based R&D, or 15 years for foreign R&D expenses.

Large and small companies alike are affected by the change, but small businesses are hurt the most, Orn said.

“(Small businesses) are the ones who are swinging into profit where they thought they were like safely losing money and not ever going to pay taxes for a while,” Orn said. “And that’s why it’s such a big surprise for them. It’s hurting people, it’s like it’s a lot of money these companies don’t have.”

Avoid underpayment penalties

Yet another reason for small business owners to use a tax professional is the fact that underpaying will cost more this year. In the past, underpayment penalties hovered at around 3%, but this year they’re more than double at 8% . That’s because the penalties are based on the federal short term interest rate plus three points, said Danny Castro, Florida Market Tax Leader at BDO USA, part of BDO Global, a global accounting network.

“The cost of underpayment is as high as it’s been in a long time,” he said.

One credit to skip: the ERC

At one time, the pandemic-era Employee Retention Credit seemed like a boon for small businesses. Designed to help small businesses keep employees during pandemic-era shutdowns, the generous credit let businesses file amended tax returns to claim the credit.

But that led to a cottage industry of scammers trying to entice small businesses to help them file for the credit – for a fee – even if they didn’t qualify. The IRS has launched several initiatives to claw back some money improperly given to businesses. To date, the IRS said 500 taxpayers have given back $225 million via a voluntary disclosure program, which ended on March 22, that let small businesses who thought they received the credit in error give back the money and keep 20%. And 1,800 businesses have withdrawn unprocessed claims totaling $251 million.

Get organized, stay organized

The best thing small businesses can do to help their tax advisers file their taxes is stay organized. A shoe box full of receipts isn’t helpful when trying to file timely taxes. Owners should log receipts in an orderly database they can turn over to their adviser. And stay on top of quarterly estimated payments.

“(Small business owners) need to be able to keep accurate records throughout the year and not have to go back in April and go, gosh, what what was this receipt for,” said Occams Advisory’s Amber Kellogg, “Keeping those, accurate records is very, very important.”

This story has been corrected to show that BDO USA is part of BDO Global, not BBO Global.

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Business planning: taxation. what to do to pass..

We're not going to lie ... BPT is not very nice. Arguably the most complex ACA paper from a technical point of view (yes, even more so than the Advanced Level), things are not made any easier by the fact that the examiners do not tell you how many marks are available for each part of the question paper! Doesn't exactly help with time management. BPT is also tricky because it is a mixture of narrative and calculations (don't overdo the calculations aspects, either in your revision or during the exam: most of the marks are actually for the narrative side of things). However, at least BPT is an open-book exam, so you can at least take some hopefully useful resources (including ours!) into the exam with you. Our popular BPT Exam Room Notes PDF publication provides alphabetically-organised, quick reference notes on all key BPT areas. Originally intended as a resource aimed at exam day (hence the name!), many students report that our BPT Exam Room Notes PDF was actually very useful in the pre-exam phase because they found it easy to locate the content. It seems pretty obvious to us that things are easier if your notes are alphabetically organised but unfortunately the ICAEW Workbook is organised primarily by chapter, so it isn't always so easy to use. We are pleased to announce that we can now offer our BPT Exam Room Notes PDF as an instant download so no more waiting around to receive the document (and no more frustrations with Junk Mail folders either!). Just click the link further down the page to make a purchase. We draw on this content and knowledge in our BPT Masterclass on-demand video course, which focuses on tutor-narrated discussions of our Skeleton Notes (notes based on past paper model answers) so that you can learn the patterns. The course is provided with a full Pass Guarantee (which may seem brave of us since this is after all BPT, but with a 100% pass rate for the course in 2021, 98% in 2022 and 99% in 2023, we are not too worried!). As with all the Professional Level ACA papers, it is vital that you use resources that force you to engage actively with the content: simply reading and note-taking is very unlikely to get the content into your brain! So for BPT, we offer our Rapid Revision Question Bank book which offers over a thousand short-form questions to help you learn both the narrative and number content through a self-test format. Actively testing your knowledge through questions is always the best way to deal with the volume of narrative content in this kind of paper. We can also offer our Technique Improvement Service to review your Mock practice attempts to unlock further valuable marks through improvements in writing style, interpretation of the question and other factors. Scroll down the page to learn more about our BPT offering.

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Thanks for the feedback, which is really useful and definitely highlighted some key points I need to work on. I really do appreciate the work done which has given me some reassurance. Thanks again for all your support: this has enabled me to tackle this exam from a different angle, which I would not have been able to do with the other providers.

I am currently preparing for the 3 Advanced Level papers and have bought your Exam Room Notes for CR (both books) and SBM. I previously used your BPT Exam Room Notes and similar to that resource, I think they're really great.

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Thank you so much!! :) I really like the Cracking Case book so far, it has helped me so much more than my tuition provider! I had no doubt about it as your notes helped me get 83% in BPT in 2019!

I can't thank you enough for the resources you have provided me to help me pass my BPT exam - the Exam Room Notes and the videos definitely gave me an  essential structure in my mind that I needed to work my way round the syllabus and I ended up with a fantastic result (75%)! I would definitely recommend you guys!

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2023 Tax Forms for Federal and State Taxes

TurboTax software programs include the tax forms you're likely to need to file your federal and state taxes. And the great thing is they guide you through your tax return so you don't need to know which tax forms to file. You can also find all federal forms and state tax forms at the links below.

Tax Forms—Federal Returns

Tax forms—state returns.

The Internal Revenue Service Web site includes all the IRS Forms & Publications  for Federal income tax returns.

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The links below take you to official state tax authority Web sites, where you can find state income tax forms and instructions for individual returns. Note: Not all states have updated their Web sites for tax year 2023.

To print and view these forms you'll need Adobe Reader on your computer. Get Adobe Reader . Select your state from the links below.

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TURBOTAX DESKTOP

• Installation Requirements: Product download, installation and activation requires an Intuit Account and internet connection. Product limited to one account per license code. You must accept the TurboTax License Agreement to use this product. Not for use by paid preparers.
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Struggling to pay your tax bill? Here’s some tips and trick

• Published: Apr. 12, 2024, 2:00 p.m.

Because a tax bill can bleed your bank account dry, put you in debt and feel overwhelming, Reckon broke down a few ways for taxpayers to tackle their payments this tax season. AP Photo

• Alexis Wray | [email protected]

If you believe that the cost of living is kicking our butts, billionaires shouldn't exist, student loan debt sucks or wages are absurdly stagnant then a weekly newsletter about student loan debt and economic justice might just be for you. Enter your email to subscribe.

The best part of tax season is planning how to spend your tax refund, but when a bill comes instead of a check many Americans grapple with how to pay the taxes they owe.

This year more than a quarter of taxpayers will owe money to the Internal Revenue Service and will have to take on debt to pay their tax bill, according to a Jan. 2024 Intuit Credit Karma survey.

After the tax filing deadline on Monday, April 15, the IRS will start assessing interest and penalties for millions of Americans, shortly after you will know if you are receiving money back or owing the government.

Because a tax bill can bleed your bank account dry, put you in debt and feel overwhelming, Reckon broke down a few ways for taxpayers to tackle their payments this tax season.

Do I have to pay the whole tax bill now?

While paying the entire bill at once will help eliminate the interest, there are options for taxpayers who can’t afford to take care of the full amount at the due date.

According to the IRS, taxpayers can apply for either a short-term and long-term payment plan to pay off their tax bill.

The short-term payment plan opens a window of 180 days or less for people to pay on a balance of $100,000 or less in combined tax, penalties and interest. The long-term payment plan provides taxpayers with the ability to pay on their bills longer than 180 days with an amount of $50,000 or less in combined tax, penalties and interest.

Those who file their taxes late and owe the IRS may be charged a failure-to-file penalty. The penalty is 5% of the tax owed for each month it is late.

Read more: How brokeness is making young Americans sick — literally

Can I pay my taxes with my credit card?

For taxpayers who want to pay their bills with a credit card, the IRS accepts MasterCard, American Express, Visa or Discover cards.

Because the IRS only accepted about a third of short and long-term payment plans in 2022, many taxpayers lean on their credit cards to cover the bill. While this provides the taxpayer with more flexibility, the IRS will add a processing fee for all credit card payments.

Based on the type of tax bill and credit card payment method, there is a maximum number of credit card payments allowed, according to the IRS.

Can I pay my tax bill with a personal loan?

Many taxpayers choose to take out a personal loan to cover their tax bill, especially if they are strapped for cash and time.

The IRS’s short or long-term payment plan often offers quicker and unmanageable financing options, while a personal loan provides taxpayers with the flexibility to make payments on a longer timeline, lower interest rates for borrowers with good credit and ask for zero collateral.

Regardless of how a taxpayer intends to tackle their bill this season, they shouldn’t ignore the IRS’s attempts to collect the taxes owed. If an arrangement or payment plan isn’t solidified the IRS can garnish your wages, levy your bank account or issue a federal tax lien.

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What to know about requesting a tax filing extension

Tax tips for college students and their parents

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There are lots of things college students and their parents should keep in mind before filing their taxes, and while tax pros say it’s great for college students to start filing their own forms, parents and students should double check everything carefully before anyone pushes the “submit” button.

Be clear on who is a dependent For dependent students filing taxes for the first time, it’s easy to overlook checking the “dependent” box, and they cannot then be claimed on their parents’ tax forms without the long and arduous task of amending the return merely for failure to check a box.

“College students need to be very careful that they understand whether or not their parents are eligible to claim them as a dependent,” says Tom O’Saben, director of tax content and government relations at the American Association of Tax Professionals. Merely not claiming a dependent does not make that taxpayer independent, he says.

Claim all eligible college and other education tax credits There are two kinds of education tax credits. The American opportunity credit is for up to $2,500 a year (based on at least $4,000 spent on tuition, books and fees) for the first four years toward an undergraduate degree.

The second, a lifetime learning credit, can be used toward an undergraduate, graduate or professional degree and is for up to $2,000 (based on 20% of qualified education expenses.) A parent cannot claim both for the same dependent child (or a student can claim it) on a return for the same year, but if there are multiple dependents on the return they could be using either of the credits (but not both at the same time) for each student.

Double check that all forms are in hand While most tax-related forms arrive dependably in the mail, college students tend to work multiple jobs each year, and some college tax forms may need to be printed out from the college portal and are not mailed at all. So before filing, make sure your dependent student has confirmed that all tax forms are in for all jobs worked, and they’ve checked with the college for any additional tax forms.

Be clear about state residency If a student is paying at least half of their own costs and is planning on claiming in-state tuition at their college in a state other than the one in which their parents live, they might want to check with the college financial aid office about residency requirements, O’Saben says.

In some cases, claiming your child as a dependent might not be the best move once the entire financial picture is taken into account.

“Just providing an address in the state your child’s college is in may not be enough to claim in-state tuition,” O’Saben says.

Make sure your college student files, if needed Sometimes college students are still required to file their own return even if their parents claim them. Students and parents should check the rules for dependent filing and determine if the student is required to file their own return based on their gross income, says Kathy Pickering, chief tax officer at H&R Block.

Make the most of your 529 account Qualifying distributions from a 529 account are tax-free and are not included in the child’s income, Pickering said. And while only eligible tuition, fees and books are included in the tax credit calculations, for 529 accounts, room and board are also included as eligible for withdrawals.

Find more of AP’s tax season coverage here: https://apnews.com/hub/personal-finance

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Prosecutors: South Carolina prison supervisor took $219,000 in bribes; got 173 cellphones to inmates

Federal prosecutors say a supervisor who managed security at a South Carolina prison accepted more than $219,000 in bribes over three years and got 173 contraband cellphones for inmates

JPMorgan Chase, Advanced Micro Devices fall; Progressive, Exxon Mobil rise, 4/12/2024

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April 12, 2024

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Four big tax myths flying around on TikTok: ‘Anyone who follows this is in for a world of hurt’

As Tax Day approaches, accountants debunk some money-saving claims that are a little too good to be true

You can find anything on TikTok from book reviews to sex education classes . So it’s unsurprising that some people hit up the app for tax advice. Just try not to be one of those people yourself.

The Washington Post reported this week that “bad tax advice is multiplying on TikTok”, with accountants-slash-influencers (or sketchy “financial experts” who boast absolutely no credentials) supposedly revealing the one per cent’s secret money-saving schemes.

The article coincides with a warning from the IRS about “wildly inaccurate” tax advice spreading via social media ahead of the 15 April filing deadline. Anyone who falls for these so-called “tax hacks” could potentially submit inaccurate information, which may lead to fines or penalties.

It might not take a CPA to know that it’s a bad idea to heed TikTok advice such as “buy a boat and write it off” or “claim your pet as a work expense”. But the Guardian approached a couple of CPAs anyway.

“The US tax code has been called one of the most complicated tax codes in the world,” said Dan Henn, a certified public accountant from Rockledge, Florida. “If most Americans can’t get it, how do you know that someone on TikTok will?”

Henn added that TikTok was just the latest source for terrible tax information. “It’s the same thing I say to people who get their advice from their brother-in-law, or their uncle, or their best friend: they may be right, but they may only be partly right,” he added.

Now it’s time to debunk TikTok’s worst tax myths – most of which irresponsibly encourage people to claim big personal expenses as business deductions.

MYTH: Start a side hustle – no one cares what – and take out an LLC. As a new business owner, you can write off your cellphone charges, computer, internet and anything that “relates to your work”.

REALITY: Henn said this wasn’t necessarily bad advice – just incomplete. It is true that starting an LLC can help you deduct expenses, but the business has to be legitimate, and there are rules. The IRS differentiates between a “real” endeavor and a hobby, and it expects taxpayers to maintain accurate bookkeeping.

“You might start a business, and just because you make a few dollars, that doesn’t entitle you to deduct your entire cellphone against the notional amount of money you’re going to make,” Paul Miller, a New York-based CPA, told the Guardian.

MYTH: Buy a boat or truck and write it off, baby! Mike Poarch , a content creator who also runs a company that sells courses about the stock market, said in a recent video that his $70,000 truck had saved “more than $21,000” on his taxes. He writes off his gas, insurance, maintenance and upgrades. Ditto for his new boat.

REALITY: Apologies to aspiring yacht owners, but this is not sound financial advice. While Poarch might get away with this, as he uses both vehicles for content creation (AKA his job), Miller said it was difficult to swing for most folks.

“[Influencers] just want attention, and they’ll get it by saying, ‘I deducted my car,’” he said. “There is a provision in the law that allows you to write off a truck, but there are hurdles: is the car exclusively used for business? Are there no personal use allegations? And do you have a real business?”

Henn added that boats and RVs were especially tricky to write off, but there were exceptions for people who genuinely use theirs for business. “An easy example is if you’re a charter fishing guy who takes people out on a boat pretty regularly and can document that,” Henn said. “I have advised people to write off their boats, but they just have to document the crap out of it. You have to document when you use it, what date and time, and why you’re using it. The law requires it. That accurate information is sort of your get-out-of-jail-free card.”

CEOs, take note: the IRS announced last month that it plans to crack down on corporate jet users who abuse the tax code and claim millions of dollars as deductions on personal trips.

When reached by the Washington Post, Poarch admitted that his TikTok might have been embellished: “Sometimes these videos make it appear a little more rosy than it may actually be, but that’s to help with virality.”

MYTH: It’s easy to claim your pet on your taxes as a work expense. For example, use your doberman as a guard dog at work. Now, you can write off his food, grooming expenses, vet bills or costs of training.

REALITY: Miller said this might work in certain cases, but it had to be a very convincing story. You’re reporting to the IRS, after all, not the ASPCA.

One of Miller’s clients runs a pediatric dentist practice and brings her personal dog into the office to calm the kids down. That’s a legitimate business use for the dog, but that doesn’t mean that she can write off all of its expenses.

“What happens when she takes the dog home from work? Is she deducting all of its dog food, or the price of the dog walker?” Miller said. “If she writes off 50% of its food to cover when the dog’s in the office, that makes logical sense to me. But deducting 100% of everything might be a little obscene. This is what we mean when we talk about crazy deductions.”

And you certainly cannot write your pet off as a dependant.

MYTH: Taxes are voluntary and you actually don’t have to spend your one wild and precious life paying them. Be free.

REALITY: Today’s TikTok youth may be too young to remember, but Wesley Snipes was sentenced to three years in federal prison for tax evasion after attempting to argue against the legitimacy of income taxes. It didn’t work for him, and it won’t for you, either. “Anyone who chooses to follow this advice is setting themselves up for a world of hurt,” Henn said.

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