Your End-of-the-Year Checklist for Small Business Owners
By Trent Derrick, CMT®
As we draw closer to the end of 2023 and the holiday season upon us, now is a crucial time for small business owners to review how their business is doing financially. While many are busy with holiday plans, parties, and shopping, it’s important for business owners to remain focused in order to end the year on a high note.
Our team at Legacy Wealth Management understands the challenge of staying organized during the hustle and bustle of this hectic time, which is why we’ve created this checklist to help prevent you from missing important details. Let’s explore these steps to help you focus, address your taxes, and start the new year in a good position.
1. Review IRS Elections (Especially if You Had a Net Operating Loss)
If you had a net operating loss (NOL) this year, double-check your IRS elections to ensure you made the correct ones. This is one of the biggest issues many CPAs see when they help small business owners file their taxes.
All these decisions play a role in how much money your business may owe in taxes. Talk with a CPA or financial professional about which elections may be right for you.
Additionally, how you structure your small business can make all the difference in the world when it comes to taxes. A tax professional can help you decide which entity type is the best for your business and help you apply before the deadline hits.
For example, let’s say you found out you could save more in taxes by structuring your business as an S corporation instead of an LLC. If you’re a new business, you have two months and 15 days from the day you file your articles of formation to file your S corp elections. (1) So, if you filed your articles of formation on March 1, you have until May 16 to file your S corp election for it to take effect that same tax year.
2. Review Your Deductions
One essential aspect of your end-of-the-year checklist as a small business owner is reviewing your taxes and deductions. This involves assessing your business expenses and identifying potential deductions that can help reduce your tax liability. Keep in mind that tax laws and regulations can change, so staying up-to-date with the latest rules is crucial.
There are several deductions available for basic business expenses and these can help reduce your taxable income significantly. Some common examples of business expenses include:
- Advertising
- Legal and professional fees
- Office expenses, including costs related to the business use of your home
- Business use of your vehicle
- Continuing professional education
- Memberships to professional organizations
Tax-deductible business expenses need to be ordinary and necessary to operate your business. Consult your tax professional for more details on qualified business expenses.
3. Review Depreciation
New depreciation rules have come into effect in recent years due to the Tax Cuts and Jobs Act (TCJA). These changes allow you to write off most depreciable assets in the year they’re placed into service, according to the IRS. (2)
Common items you can write off for depreciation include computers, equipment, machinery, cell phones, buildings, office furniture, and vehicles, as well as intangible items like copyrights.
Make sure you keep a list of everything that counts as a depreciable expense. Doing so will help you lower your business’s taxable income.
4. Check Eligibility for Company Retirement Plans
There are several different tax-advantaged retirement plans available to small business owners, including the solo 401(k), the SEP IRA, and the SIMPLE IRA. A solo 401(k) is designed for businesses with only one employee, the business owner, whereas SEPs and SIMPLEs can be used for businesses with more employees, though SIMPLE IRAs are capped at 100 employees.
According to the IRS, (3) an employee can participate in a SEP IRA if they:
- Are at least 21
- Have worked for the employer in at least 3 of the last 5 years
- Received at least $750 in 2023
Business owners can choose to be less restrictive than this and allow other employees to participate in a SEP, but you can’t be more restrictive than these IRS rules allow.
Review your SEP IRA eligibility requirements to ensure employees can participate in the program if you want them to.
Choosing to add an employer-sponsored retirement plan to your company can be a great way to take advantage of tax credits, (4) including those for setting up a new plan and auto-enrolling employees. You may also be eligible for additional tax deductions by making qualified employer contributions on behalf of your employees. It’s important to review your options with a qualified financial professional before making a decision on a retirement plan as each plan type comes with its own unique benefits and drawbacks.
5. Review New Due Dates & Filing Methods for 1099s
A new rule that began in 2020 (5) states any freelancers or contract workers who earned more than $600 from your company will receive Form 1099-NEC instead of 1099-MISC. NEC stands for “non-employment compensation”—and it’s only used for reporting independent contractor income.
1099-NEC forms are due on January 31. If this day falls on a weekend, they’re due the following business day.
A Financial Partner to Help You Prepare
The Legacy Wealth Management team is experienced in supporting small business owners like you in saving, preserving, and enjoying their money for the long term. If you need help sorting out your finances before the new year arrives, we’re here for you. We also collaborate closely with our network of CPAs so you can receive all-encompassing financial guidance, covering areas like tax planning and management of your cash flow. To begin, contact us to book a consultation with me here or email me at trent@legacywm.com.
About Trent
Trent Derrick is a financial advisor and Chief Market Technician at Legacy Wealth Management. Trent is passionate about the value small businesses bring to their communities and specializes in serving small business owners by providing seamless financial advisory services tailored to their financial needs, including tax planning strategies, cash flow management, and retirement planning. Trent has a bachelor’s degree from the College of Charleston and studied economics at the University of South Carolina, Columbia. He is a Chartered Market Technician® (CMT®) professional. Trent serves as a guest lecturer for the College of Charleston’s MBA program and acts as chairman of the Market Technician Association’s Charleston chapter. When he’s not working, Trent, a proud Eagle Scout, enjoys volunteering with the Charleston Animal Shelter’s outreach program. Trent and his wife love to cook international cuisines and host dinner parties with their friends. To learn more about Trent, connect with him on LinkedIn.
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
Legacy Wealth Management and LPL Financial do not offer tax advice or services.
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(1) https://www.irs.gov/instructions/i2553
(4) https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
(5) https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-form-1099-nec/L5fbwIFSn