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‘Tis the Season: Four Tax Considerations for Your Business

Settling into the new year, business owners are shifting their mindset to tax season. Though the tax process can often be complex and drawn-out, it’s important to be thorough in order to ensure not only accuracy, but also that you obtain all the deductions your company qualifies for.

Even if your CPA checks off the majority of items on your tax to-do list, there are still a number of ways you can help the process move along smoothly. From researching legislation to collecting financial records, proactively gathering all information necessary for filing helps to ensure meetings with your advisors are as productive and efficient as possible. Here are four important considerations business owners should take before tax day:

1. Fine tune your annual reporting and expense tracking

To simplify the tax process and maximize deductions, be sure to finalize your annual reports and double check your financial records. Actively keeping track of your business receipts and expenses throughout the year will lighten your load when tax time arrives. By gathering all the necessary documents ahead of time, you’ll not only get ahead in the filing process, but you’ll gain a better sense of your yearly spending. Even if you didn't start preparing in advance this year, starting the process as soon as possible is better than waiting until crunch time. Consider implementing automated tracking tools to speed up yearly tax procedures and make meetings with your advisors as efficient as possible.

2. Don’t miss out on credits and benefits

There are a number of credits and benefits your business may qualify for that can potentially lower your tax liability. For instance, if your company is working towards enhancing a product or process within the United States, you may be eligible for the Research and Development (R&D) Tax Credit.

Eligible employers may also be able to claim a tax credit of up to $5,000 for three years, for the costs of starting a retirement plan. Another credit worth exploring is the Work Opportunity Tax Credit (WOTC), a federal tax credit available to businesses hiring individuals from certain groups who have faced barriers to employment such as veterans, ex-felons and others.

Be sure to check and see if your business is able to file as an S corporation, a special tax status with the IRS that allows a company to bypass paying corporate-level income tax. Instead, any tax due is paid at the individual level by the owners. In order to be elected you must fill out a 2553 form with the IRS and meet all the S corporation guidelines, such as identifying as a domestic corporation, having no more than 100 shareholders, only having one class of stock, and more.

3. Brush up on the latest tax legislation

Another important point on your tax-preparation checklist should be to review new tax legislation and updates. According to The National Federation of Independent Business, for tax year 2023, business income up to $182,100 (individual) or $364,200 (joint) is eligible for the full 20% Small Business Deduction. There are some cases where businesses over these limits can still qualify for the deduction, so connect with your CPA to learn more.

The deduction phases out $50,000 (individual filers) and $100,000 (joint filers) of taxable income. It’s especially critical for small-business owners to assess all potential deductions for their business, as they could save a significant amount of money, if eligible.

The House recently passed a tax bill known as the Tax Relief for American Families and Workers Act of 2024, that will be retroactive to 2023. This bill has significant tax savings opportunities for many small businesses and is currently in the Senate. If passed, ask your CPA if this new law might have an impact on your 2023 taxes. If so, consider filing an extension and wait for the final word on this legislation.

4. Communicate with your advisors

Touch base with your CPA well in advance of tax time to ensure they have all the documents necessary to file your return. You may also consider scheduling a meeting with your financial advisors to discuss tax strategy to avoid any last minute surprises. Consider setting up quarterly reviews with your tax team for the current year to help you keep up with both internal reporting deadlines and planning for business changes throughout the year. Regular communication throughout the year can reap big dividends this time next year.

An expert financial team can help you navigate filing preparation items and tax credits and benefits you may be eligible for. Work with your banker, tax professional and any other financial advisors to get the most out of this tax season.