5 Tax Planning Strategies for Clients Who Own a Small Business

The credit is worth up to $2,400 per eligible new hire.

To be eligible for the WOTC, small businesses must hire individuals who are a member of one of these target groups, complete Form 8850, and submit that form to a designated local state agency within 28 days from the new employee’s start date.

Once the state agency confirms that the employee is eligible for the credit, the business can claim the credit on their next regularly filed return.

Disabled Access Credit

The Disabled Access Credit (DAC) is designed to help small business owners offset some of the costs associated with providing access for people with disabilities. The credit is worth 50% of up to $10,000 in eligible expenses, but you can’t claim the credit on the first $250 of qualifying expenses.

To claim the credit, your business must have revenue of $1 million or less and no more than 30 full-time employees.

Some examples of expenses eligible for the DAC include modifying existing facilities to make them accessible for disabled individuals, offering Braille, large print and audio versions of materials, providing a sign language interpreter or reader for customers or employees or purchasing adaptive equipment.

Credit for Small Employer Health Insurance Premiums

Small businesses that provide health insurance benefits for their employees may be able to claim a tax credit to help offset some of those costs.

To qualify, you must:

Have fewer than 25 full-time equivalent employees
Pay average wages of less than $58,000 per year per full-time equivalent in 2022 (That amount is indexed for inflation so it changes annually)
Purchase group health insurance through the Small Business Health Options Program Marketplace
Pay at least 50% of the cost of employee-only coverage for each employee

If you qualify for the credit, it’s worth up to 50% of the premiums you paid during the year. You can claim the credit for two consecutive tax years.=

4. Defer — or Accelerate — Income

Many small businesses use the cash method of accounting on their books and tax returns. Under the cash method, a company recognizes income when it’s received and expenses when paid — in other words, when cash actually changes hands. That creates some interesting tax planning strategies.

If you expect to be in a lower tax bracket next year, you might want to defer income to next year, when you’ll pay taxes at a lower rate.

When to Defer Income

For example, say you did some work for a client in December 2022, but you haven’t yet billed the client for your services. If you wait until January 2023 to invoice your client for the work you did in December, you could defer income to the next year and lower your 2022 tax bill.

When to Accelerate Income

On the other hand, it might make more sense to accelerate income into this year — especially if you think tax rates will increase in the near future. In that case, you might want to send your invoice and try to collect payment from your client in 2022, so more income will be taxed at your current tax rate.

The same concept works with expenses. If you’re in a high tax bracket this year, you might want to accelerate expenses in 2022 to reduce your taxable income. Here’s a handy guide for when to accelerate or defer income and expenses.

Defer income, accelerate expenses when:
Accelerate income, defer expenses when:

· You had unusually high income in 2022, which is pushing you into a higher tax bracket
· You had unusually low income in 2022 and want to take advantage of paying taxes in a lower bracket

· You expect tax rates to increase in 2023
· You expect tax rates to decrease next year

5. Set up — or Contribute to — a Retirement Account

Setting up or contributing to a retirement account can reduce your taxable income. Business owners have several options for retirement savings, both for themselves and their employees.

If you set up a 401(k) plan before the end of the tax year, you can deduct any contributions made to the plan when you file your tax return. The plan’s terms dictate how much an employer can contribute. For 2022, total employee and employer contributions are limited to the lesser of an employee’s compensation or $61,000.
If you miss the cutoff to set up a 401(k) plan in 2023, you might still be able to set up a simplified employee pension plan, also known as a SEP. You have until the due date of your return (including extensions) to set up a SEP. The employer’s contribution to a SEP is limited to 25% of the employee’s compensation, capped at $61,000 for 2022.

If you start up a 401(k) or SEP, not only can you deduct contributions to the plan, but you may qualify for the retirement plans startup costs tax credit, available to employers that:

Had 100 or fewer employees who received at least $5,000 in compensation during the year
Had at least one plan participant who was a non-highly compensated employee
Have not had another employer-sponsored retirement plan in the past three years

The credit is worth 50% of the plan’s startup costs, up to a maximum of $5,000.

Important 2023 Tax Filing Deadlines

Tax day typically falls on April 15 for most people, but if that date falls on a weekend or holiday, the IRS pushes the deadline to the following business day. But tax day isn’t the only important date for small business owners. Here are a few other important dates to mark on your tax filing calendar in 2023:

2023 tax date
Milestone

January 17
Fourth-quarter 2022 estimated tax payments due

March 15
Partnership and S corporation tax returns due for the 2022 tax year

April 18
Last date to make a 2022 IRA contribution Individual and C corporation tax returns due for the 2022 tax year First-quarter 2023 estimated tax payments due

June 15
Second-quarter 2023 estimated tax payments due

September 15
Third-quarter 2023 estimated tax payments due Extended partnership and S corporation tax returns due

October 16
Extended individual and corporate tax returns due

January 16, 2024
Fourth-quarter 2023 estimated tax payments due

Every business’s tax situation is unique, so it’s important to discuss these small business tax planning strategies with your tax professional before making any significant moves. Still, these strategies should help you to prepare for your year-end tax planning meeting and understand more about how your small business can minimize taxes.

Janet Berry-Johnson is a freelance writer with four years of experience covering accounting, income taxes, insurance, mortgages and personal finance topics. She’s a CPA and spent a decade working as an auditor and tax adviser before pursuing writing full-time. She’s written for several outlets, including Forbes, Discover, FreshBooks and Wirecutter. Her blog, Life & Taxes, caters to small business owners interested in learning more about accounting and taxes.

Reprinted with permission from Lending Tree. Opinions expressed are the author’s.

Join our LinkedIn group, ALM’s Small Business Adviser, a space where small business owners can gather to network, have discussions and keep up with the trends and issues affecting their industries, or visit our Small Business Adviser group on Facebook.

(Photo: Shutterstock)