Maximizing Year-End Tax Benefits for Small Businesses
As we approach the end of the tax year, it’s prime time for small business owners to take a close look at their finances and make strategic moves to reduce tax liabilities. The National Small Business Association (NSBA) strongly encourages small business owners to take advantage of tax-saving opportunities now, especially with potential shifts in tax policy after the upcoming election. Here’s how to make the most of tax cuts and deductions before the year wraps up.
Why Act Now?
For many small business owners, taxes represent a significant annual expense, and any chance to cut down on that is crucial. Tax policy changes could be on the horizon depending on the election outcome, and proactive planning is key to taking advantage of existing tax benefits. Waiting until next year to make adjustments could mean missing out on valuable deductions, credits, and exemptions that may be reduced or eliminated under new laws.
End-of-Year Tax Moves to Consider
Here are some strategies small business owners can implement to optimize their tax savings before the end of the year:
- Accelerate Deductions
One effective way to reduce taxable income is to accelerate deductible expenses into the current tax year. If you’re planning to make large purchases or investments — such as buying new equipment, paying vendor invoices, or prepaying for services — consider doing it before December 31. Accelerating these expenses can help reduce your taxable income for this year, bringing immediate tax savings.
2. Section 179 Expensing
Under Section 179, small businesses can deduct the full cost of qualifying equipment and software purchased or financed during the tax year. For 2023, the deduction limit is $1.16 million. If you’re considering buying or leasing new equipment, do so before year-end to leverage this tax break. This can include anything from machinery and vehicles to computers and office furniture, as long as they’re in use by year-end.
3. Take Advantage of Bonus Depreciation
For larger purchases that exceed the Section 179 cap, bonus depreciation can be a lifesaver. Currently, businesses can deduct 80% of the cost of new and used assets in the first year. Although this percentage may decrease in future years, it’s still available for 2023, making it a great way to significantly reduce tax liability on substantial investments.
4. Establish or Contribute to a Retirement Plan
Establishing or contributing to a retirement plan can lower your taxable income while supporting employee retention. Plans like SEP IRAs or SIMPLE IRAs allow both you and your employees to contribute before the year ends, which reduces taxable income. As a small business owner, you can deduct contributions to employee retirement plans and get a tax credit for setting up a new plan.
5. Review Employee Benefits and Potential Tax Credits
Consider tax credits that reward you for offering employee benefits, like health insurance and paid family leave. If you’re eligible, these credits directly reduce your tax bill rather than just your taxable income, making them incredibly valuable. Additionally, providing benefits can boost employee satisfaction, which is especially important for retaining talent as we move into a competitive hiring landscape next year.
The Importance of Year-End Tax Planning
According to the NSBA’s Politics of Small Business Survey, one of the biggest challenges small business owners face is managing the costs of regulatory and tax obligations . By making strategic decisions now, you can take control of these costs and maximize your business’s financial health going into the new year.
Key Takeaways
- Accelerate Expenses: Bring forward expenses to reduce this year’s taxable income.
- Use Section 179 Deduction: Take full advantage of this benefit for new equipment purchases.
- Consider Bonus Depreciation: Maximize deductions on substantial investments.
- Fund Retirement Accounts: Reduce taxes and invest in your team’s future.
- Leverage Employee Tax Credits: Lower taxes by offering benefits that retain talent.
With just a few months left in the year, now is the time to implement these strategies. Talk to your accountant or tax advisor to make sure you’re on track and taking full advantage of these year-end tax benefits. Tax planning today can mean savings tomorrow, allowing you to close the year strong and start the new one with confidence.
