What business owners need to consider going into 2023

Don't forget to fund your account and your employees' accounts.

In 2022 the Illinois Secure Choice Savings Program Act mandates all employers with five or more employees in business two or more years must maintain a retirement plan for their workforce. Plans that qualify include 401(k), 403(b), 457, SEP or SIMPLE-IRA plans.

A SIMPLE IRA is a low-cost and simple solution and does not require any filings with the IRS. The employer must make a matching contribution of 3%. Choose a 401k for potentially larger contributions and more flexibility. You can set up Roth or Traditional IRAs using Illinois Secure Choice, funded by payroll deduction.

Enforcement starts in 2023. Non-compliance penalties are $250 per employee for the first year and $500 per employee for each subsequent year.

You will need to register your company and plan or request an exemption. Larger employers have already registered. Those with 16-24 employers must register by Nov. 1, 2022, and those with 5-15 employees must register by Nov. 1, 2023. You should contact your advisor and learn more at employer.ilsecurechoice.com.

IRS audits

Operate as though you will be audited for 2022.

With the IRS adding 87,000 agents, prepare for increased audits going forward of pass-through entities and sole props, especially S-Corporations. There are over five million S-Corps in the US, 3 times more than regular C corporations.

In 2019 about 10,000 S-Corps were audited so this will likely be a focus of the IRS.

• Be sure you are comped with an appropriate salary.

• Expect audits at all income levels. Although individual taxpayers reporting above $1 million will be in focus, don't make the mistake of thinking you won't be audited because you are small.

• The IRS is expected to concentrate on underreported capital gains from Crypto and private transactions.

• 2022 is a good year to tighten up those loose ends and clean up bookkeeping issues.

Recession

Plan for a 2023 recession.

Fed Chair Jay Powell made it very clear in Jackson Hole on Aug. 26 that they will continue to raise short-term interest rates until they see evidence of higher unemployment and lower inflation. Prepare for higher interest rates.

Our recession indicators are turning red indicating a possible real recession starting as early as the first quarter of 2023. Watch for at least two more Fed rate hikes on Nov. 2 and Dec. 14. Build your cash positions and consider delaying purchases and hiring if your business would be negatively impacted by a recession. This next recession will likely be very different than the COVID recession of 2020; 1994 and 1998 may be better years to look to for guidance.

Inflation

Prepare for more persistent inflation.

With persistent inflation it is likely you are seeing a profit-margin squeeze. Consider raising your prices. In this environment your customer may well be expecting a price hike.

Inflation at its root results from more dollars chasing the same goods, and if there is a shortage of goods and materials, then inflation worsens. Since the 2008 financial crisis the Fed and Washington have flooded the system with over $27 trillion of printed and borrowed money. Some is good, but too much eventually stokes inflation.

The United States could be entering a new inflationary cycle that could last decades, so watch your cost inputs carefully, and don't get left behind by your competition.

• John W. Bever, CFP, is president of Phase 3 Advisory Services in Buffalo Grove.