“Those who fail to plan, plan to fail.” For small business owners, this expression holds true. As the year is coming to a close, it is time to think about taxes.
To start KEEP GOOD RECORDS. The best way to reduce your tax bill is to keep current financial records. To verify their accuracy, monitor the information on a regular basis. Be sure to capture all your business expenses. Keep your receipts, run all your business income and expenses in one bank account and don’t mix personal expenses with business. If you need the expense to earn your business income, most likely it will be tax deductible.
Business Opportunities & Issues
- Invest in equipment. Need to place in service these assets by December 31. A business can write it off under tax code sec 179 up to $1,160,000. Wisconsin does not allow bonus depreciation but does follow Federal Sec 179 limits.
- Invest in a company vehicle. If you use your vehicle more than 50% for business consider buying one in the business. Depreciation is $20,200 for 2023, $19,500 for year 2, $11,700 for year 3 and $6,960 for year 4 and thereafter. Note that the personal portion of a business vehicle is added to your taxable wages.
- Establish or expand a retirement plan. For those just starting you may be able to claim a tax credit for setup costs of SEP, SIMPLE IRA or qualified plan. Consider making a discretionary profit-sharing contribution. To be tax deductible the contribution must be made no later than the tax return file date. For a business the plan typically has to be set up before 12/31.
- Maximize the Qualified Business Income deduction. You could avoid paying taxes on 20% of your business income. The calculation is complex and can be an all or nothing option – so plan ahead. For those with service businesses and those with high taxable income and low wages, there are ways to increase this deduction.
- Make sure you have the right entity for your business. A sole proprietor may benefit from electing to be taxed as an S corporation. The tax benefit depends on the specific situation.
- Elect to pay WI taxes at the business level. S corporations can opt to pay WI taxes like a C corporation. The rate is a bit higher, however the WI taxes paid will reduce the Federal taxable income.
Claim all your expenses and tax credits
- Vehicle expenses. You can choose between deducting the business portion of the actual costs or deduct 65.5 cents per business mile. A written mileage log documenting business and personal miles is required to take the deduction.
- Restaurant Meals are 50% deductible now. Entertainment expenses are not tax deductible. Please keep receipts and tax support.
- Office in the home. If you work out of your home in a space used exclusively for business you can write off a prorated amount of your home costs. The deduction is limited to the taxable income, though costs can be carried forward.
It is critical to consider your personal and business circumstances before implementing any ideas. These suggestions are for discussion purposes. Majority of the items mentioned have very specific requirements. The requirements can be complicated and may yield different results based on your unique situation.
If you have any concerns or want to reduce your tax surprise, call our office 920-351-4842 and set up a tax planning meeting.
Mary Guldan-Lindstrom, CPA