By Jason Epps, CFP®, CRPC®
As the calendar approaches its final pages and the holiday season draws near, it’s a pivotal moment for small business owners to take stock of their operations and financial standing. While many are focused on festivities and family gatherings, business owners must also prioritize wrapping up the year on a strong note.
This end-of-the-year checklist for small business owners is designed to prevent crucial details from being overlooked during this critical time. It’s a road map for safeguarding your business’s financial health and can help you minimize your tax burden and start 2024 off on the right foot.
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 our 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 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.
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, an employee can participate in a SEP IRA if they: (2)
- 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, including those for setting up a new plan and auto-enrolling employees. (3) 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 states any freelancers or contract workers who earned more than $600 from your company will receive Form 1099-NEC instead of 1099-MISC. (4) 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 Partner to Support Your Success
At KFA Private Wealth Group, our experience lies in supporting small business owners in building, safeguarding, and enjoying their wealth over the long term. If you’re looking for help addressing any financial matters before the new year arrives, we are here to lend a hand. We also collaborate closely with the CPAs of our in-house tax and accounting team to make sure you receive truly comprehensive financial advisory services, including tax planning and cash flow management. To get started on this journey toward financial success, don’t hesitate to contact us by emailing jepps@kfapwg.com or calling 571-386-2022 to schedule an appointment.
About Jason
Jason Epps is vice president and private wealth advisor at KFA Private Wealth Group, a registered independent advisory firm founded on the premise of providing sound financial and investment advice. With over 17 years of experience, Jason possesses the unique knowledge and expertise necessary to provide his clients with the financial guidance to help them find confidence in their financial future. Jason is a CERTIFIED FINANCIAL PLANNER™ practitioner and a Chartered Retirement Planning Counselor℠, CRPC®, and believes that a financial plan is only as strong as the advisor’s understanding of the core values and beliefs of each client. He serves a diverse range of clients, from young accumulators to pre-retirees and retirees, including business owners and professionals in a variety of fields. Jason graduated cum laude from Mount St. Mary’s University, where he currently serves on the university’s Board of Trustees. While at Mount St. Mary’s, Jason played four years of Division I college basketball. In his spare time, he enjoys traveling, trying new restaurants, and cheering on the local D.C. sports teams. To learn more about Jason, connect with him on LinkedIn.
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(1) https://www.irs.gov/instructions/i2553
(3) https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
(4) https://turbotax.intuit.com/tax-tips/irs-tax-forms/what-is-form-1099-nec/L5fbwIFSn
