Never too early: Tax moves every business owner should consider right now

There's still a number of months to go before the end of the year and the smartest business owners I know are taking steps now to minimize their 2023 tax bite.

That makes sense, considering that your tax bill is probably among the highest costs you have. So what moves are they making? Here's a few to consider.

Pay (or adjust) your estimated taxes

Make sure all of your estimated taxes are paid on time. Don't skip these payments because you could be setting yourself up for fines and penalties. If you think your profits this year are going to be less than last year then you might want to consider changing what you pay.

"You should be working closely with your accountant and make adjustments to your estimated payments as you think necessary," said Sarah Brown, who runs a tax preparation and consulting firm in Oak Forest. "There's been a lot of fluctuation in the economy and there's still a lot of uncertainty so it's good to have a financial adviser to rely on."

Maximize accelerated depreciation

Thanks to the 2017 tax legislation businesses have been able to deduct about $1.1 million in the form of "accelerated" and "bonus" depreciation when they purchase and put into service equipment, machinery and other capital items - even computer hardware and software.

That deduction has been reduced to 80% of the purchase price (the remainder must be depreciated over the life of the asset) and next year it goes down to 60% so it's wise to make those purchases this year and take advantage of a bigger deduction.

Accelerate expenses or defer your income

For cash-based businesses it may make sense to push more deductions into this year and defer cash receipts where you can into next year.

"Maybe, for example, this year is turning out to be really busy but you're not so sure next year will be the same," said Tim Owens, CPA, a director at PKF Mueller, a financial advisory firm based in Orland Park. "If you're able to legitimately slow down your billing and collections so that you can move income to the next year then it's something worth considering."

See if you're eligible for the Employee Retention Tax Credit

Owens has also been encouraging his clients to take advantage of the Employee Retention Tax Credit before it expires in 2025.

This is a COVID-era refundable payroll tax credit for businesses whose revenues were impacted by the pandemic or were forced to partially or fully shutdown by the government. The tax credit can be taken against payroll taxes paid during most quarters of 2020 and 2021 and it can be quite substantial - as much as $7,000 per employee for some quarters. Talk to your accountant or your payroll company to see if your company is eligible and if so, have them prepare an amendment to your previously filed payroll tax returns.

"If the credit is bigger than the taxes you paid then you can get a refund from the government," Owens said. "It may be a great source of cash for a small business if they're eligible."

Maximize 401(k) and Roth 401(k)

Thanks to legislation passed late last year companies can now setup Roth 401(k) plans for themselves and their employees and make contributions to this after-tax plan. It's important to put as much away as possible in a regular 401(k) or Individual Retirement Account, but if you're able to put additional funds into a Roth account then those savings can grow tax free and with no required future distribution.

Also if you're over 50 years old you should take advantage of any "catch-up" contributions you're allowed to put additional money away for retirement. The 401(k) contribution limit for 2023 is $22,500 for employee contributions and $66,000 for combined employee and employer contributions.

The catch-up contribution allows eligible employees to make an additional $7,500 this year, assuming income limits are met.

Consider a few 'wash sales'

The stock market's been up and down this year and if you've got a stock in the doldrums - but you still think it may have some upside in the future - then consider a wash sale. To do this you'll need to sell your stock and then buy it back after 30 days. You can deduct any loss on that stock against any other capital gains or up to as much as $3,000 against your ordinary income. Assuming the stock doesn't take off during that month, it's a great way to get a tax deduction and still enjoy the stock's upside going forward.

Finally, meet now with your accountant and make your plans

"A lot of times there's not a lot of planning ahead of time, but planning allows you to have a better understanding of the potential the bumps in the road," Brown said. "I know we're talking about the 2023 tax season, but my best clients are already thinking of 2024."