As 2023 is ending, now is the perfect time to evaluate your business’ tax planning strategy to optimize your returns. While inflation, interest rates, and potential legislation can make it impossible to completely predict the future, establishing a consistent list of priorities and a core strategy can set your business up for an easier tax season. This article includes a checklist to provide you with both short-term and long-term considerations to reduce or defer taxes over time.
Short Term Considerations
As a result of increases in interest rates and high cost of debt, many business owners may elect to preserve their cash by utilizing different accounting methods to reduce their tax liabilities.
- Altering when you recognize certain advance payments to split those costs between different tax years.
- Utilizing the overall cash method of accounting, instead of the overall accrual method.
- Purchasing qualifying property or new equipment before the end of the year to take advantage of bonus depreciation or the Section 179 expensing rules.
- Deducting accrued compensation liabilities (bonuses, severance payments, etc.) that are determined before the end of the year and paid within 2.5 months.
- Ensuring that you are optimizing inventory valuation methods to take a higher cost of goods deduction and offset costs.
- Writing off bad debts, worthless property, or claiming losses for investments to offset capital gains.
Long Term Considerations
The changes below reflect actions that could provide a substantial impact on your business’ long term tax strategy.
- Conduct a cost segregation study of your real property investments to identify discretionary incentives to reduce or defer taxes, claim qualifying bonus depreciation, and accelerate taxable deductions.
- Consider simplifying your legal entity structure to reduce administrative costs, provide other benefits, and create greater efficiency.
- Evaluate the use of long-term deferral strategies for Capital Gains such as reinvesting in Qualified Opportunity Zones or selling shares to Employee Stock Ownership Plans.
- Weigh the benefits of utilizing an ESOP as an exit or liquidity strategy, which could provide tax benefits to owners and the overall company.
Implementing these short-term and long-term changes into your tax strategy can help reduce or defer your business taxes. While this article provides general advice, your business may benefit from a more detailed and targeted approach when developing your 2023 tax plan.
The experienced tax planning professionals at Capossela, Cohen, LLC will cultivate the appropriate strategy to help your business remain in compliance with the latest laws and regulations, while also assisting you in reaching your desired financial goals. Begin your journey towards a better tax year in 2024 and contact us today.