The 2022 tax season has officially ended. This year, on October 17th, the 2023 tax season officially began – with tax planning season!
While tax planning should be an ongoing discussion between business leaders and their CPA, now is a key tax planning time.
Tax Planning Discussions to have in November and December:
To make informed decisions affecting tax liability, you first need to know where you stand YTD and forecast what the remainder of the year looks like. Step 1 is to categorize 2023: was it a great year, an ok year, or a bad year for your business?
With that basic information, you should then discuss (at least) the following six points with your CPA:
- For a great year, considering deferring revenue to 2024.
- For a bad year or OK year, you may want to accelerate expenses, reducing net income and tax liability.
- What capital expenditures are you considering for the rest of 2023? Unless there is an emergency need, capital expenditures should be a strategic discussion evaluating the tax benefits of asset acquisition, disposition, and the associated depreciation.
Important note: when it comes to capital expenditures, most assets can only be depreciated once put into service. (e.g., forklifts, HVAC systems, vehicles) Having placed an order in 2023 or making a deposit on equipment does not affect the ability to depreciate the item.
- Are you considering making changes to your company retirement plans next year? Advanced planning and action is required to be completed in 2023 for changes to be effective in 2024.
- Charitable planning considerations is another area to revisit as part of effective tax planning before year end. Often, donors make multi-year pledge commitments to a school as an example. If you have had a great year, you may want to evaluate the tax benefits of accelerating the payment of the pledge. Another consideration is evaluating whether or not you are in a position to fulfill this gift with long-term securities with a large unrealized gain to pack an even bigger punch!
- Cash flow and planning for future tax liabilities are important considerations as year end approaches. Avoid getting blindsided by neglecting to account for tax payments due in the coming months and the effect on projected cash flow.
While you may be inclined to take a break from tax discussions given the 2022 tax season just ended, you and your business will benefit from making the time to look ahead and plan ahead for 2023 taxes. While most think of accountants as backward focused, we pride ourselves on working with our clients to be proactive and forward focused. Time is our friend when it comes to effective tax planning for businesses. Lack of time restricts options to reduce tax liability.
If you and your business could benefit from forward-thinking, proactive tax planning, learn more about LCW CPAs.
The time is now. The sooner you get started, the more likely we are both going to enjoy the upcoming holiday season.