Year-End Tax Planning: Businesses
As we close in on the end of 2023, it is important for business owners to evaluate the tax impact of their 2023 operations and contact their tax advisors to review 2023 results and discuss any year end planning opportunities.
During 2023, Congress passed the Inflation Reduction Act of 2022 which extended and added a host of new credits related to the transition to a clean energy economy. The Act incentivizes new investment into clean technology and should be something taxpayers consider for 2023 and beyond.
Tax law is a moving target with changes happening regularly that impact taxpayers, however, as the date of this publication there is no active pending tax legislation to cause significant changes to our tax laws for 2023.
For business owners, these are the items you may want to consider prior to the end of the year:
Method of Accounting
Tax law stipulates that taxpayers must use the accrual method of accounting when an entity meets a three-year inflation-adjusted average gross receipts, which is approximately $29 million for 2023. If an entity is required to change accounting methods for 2023 it is important to talk to a trusted tax advisor to understand the tax impact.
Accruing Expenses
For accrual basis taxpayers it is important to start planning for services and deliveries that are anticipated towards year end. It may be advantageous for some Taxpayers to either delay delivery and services until the next tax year or accelerate into the current year depending on the specific tax situation.
Timing of Expenses
For cash basis taxpayers payment needs to be made prior to year end for expenses to be deducted in 2023. Depending upon your tax situation you may want to consider accelerating payments into 2023 or delaying payment until 2024.
Accelerated Depreciation
Taxpayers can still utilize both section 179 and Bonus Depreciation during 2023 for qualifying property and equipment. However, as of 2023, it is important for taxpayers to note that the first-year bonus depreciation deduction has fallen to 80% and is scheduled to continue to decline as follows:
Bonus Depreciation Rates
| Year | Rate |
| 2023 | 80% |
| 2024 | 60% |
| 2025 | 40% |
| 2026 | 20% |
| 2027 | 0% |
2023 Section 179
Maximum amount of deduction: $1,160,000.
Qualified Business Income Deduction
Eligible taxpayers, through 2025, can deduct up to 20% of qualified business income. There are multiple limitations, and exclusions depending on the specific tax situation, so it is important to speak to a trusted tax advisor to understand if an entity qualifies.
Questions?
With an always changing tax landscape it is crucial to work with a trusted advisor on tax planning. We will continue to monitor all future developments and keep you informed with the latest tax law changes.
If you have questions about tax planning or other accounting, tax or advisory services, please call 215.675.8364 or email us to speak with a CPA today.
Abraham Shahswar, CPA contributed to this article.
DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update, and other related communications are intended to provide general information, as of the date of this communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.
