Tax Planning for Your Business

“Those who fail to plan, plan to fail.” For real estate investors and small business owners, this expression holds true. As the year is coming to a close, it is time to think about taxes. Now is the time to understand your unique tax situation and how to minimize your tax bill.

Business opportunities & issues

  1. 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 $1,000,000. Wisconsin does not allow bonus depreciation but does follow Federal Sec 179 limits.
  2. Invest in a company vehicle. If you use your vehicle more than 50% for business consider buying one in the business. Depreciation is $19,200 for 2022, $18,000 for year 2, $10,800 for year 3 and $5,760 for year 4 and thereafter. Note that the personal portion of a business vehicle is added to your taxable wages.
  3. 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 that the tax return file date. For a business the plan typically has to be set up before 12/31.
  4. 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.
  5. 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 56 cents per business mile. A written mileage log of business and personal miles is required to take the deduction.
  • Restaurant Meals are 100% deductible in 2021 & 2022. In an attempt to encourage business owners to support restaurants, meals paid to a restaurant are 100% tax deductible this year.
  • 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.
  • Keep good records. Collect your business or rental income in one bank account. Pay all your business or rental expenses out of that one account. Record your business mileage throughout the year.

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

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