End-of-Year Tax Updates

In the Small Business Edge recent segment of our 5 in Five podcast, our guest expert was Barbara Weltman, Founder and President of Big Ideas for Small Business, Author of the J.K. Lasser Small Business Taxes 2023 Edition, and a top tax expert for business owners. Below are highlights from our discussion.

Brian Moran: If business owners are stuck with inventory at the end of this year, what options will they have to gain any sort of tax break?

Barbara Weltman: Mark them down and offer them for sale at least 30 days before the end of the year. Then, consider donating your remaining inventory for a potential tax deduction, but not a great amount. Lastly, if you can't give it away or sell it, throw it away, and write it off.

Brian: Are there tax deductions in 2022 for charitable giving?

Barbara: During Covid, the IRS upped the write-off opportunities for charitable giving, but they have expired. We are back to the pre-pandemic limits for 2022.

Many businesses like to give employees time off to work with favorite charities or as part of a group activity. In some cases, there isn’t a tax break, but there is certainly a lot of good will. Remember, most employees like to work for companies that do good.

Brian: Looking ahead to 2023, there seems to be many new “green” tax rules. What can business owners expect from those in 2023 and how can they plan accordingly?

Barbara: You are correct. There are a slew of new tax rules related to green energy. Look for tax rules on buying new, preowned, and commercial electronic vehicles (EVs). There will also be tax credits for EV charging stations. We currently have tax deductions for energy efficient commercial buildings, but they will increase substantially in 2023.

The drawback at this point, is that we need guidance, and we don't have it yet. There are some sticky questions, such as new rules requiring apprenticeship programs and we don't know how it all fits into the tax picture.

Brian: When do business owners need to decide on offering a retirement plan for their employees in 2023?

Barbara: It's not too late to decide on a 2022 retirement plan if you don't have a plan. You can set up and fund a retirement plan up to the extended due date of your return (potentially October 2023). But, if you choose a plan like a 401k that requires employee contributions, you will need to give them a notice period.

For 2023 retirement plans, the sooner you do it, the better. There is a lot of flexibility for companies to decide whether the plan will be fully funded by employee salary reduction contributions or whether employers are going to make contributions as an incentive or as a benefit to them.

There are tax credits too. If you don't currently have a plan, set one up, and if at least one person in the plan isn't an owner, you can get a tax credit for up to three years.

Brian: Barbara, thank you so much for today.