Navigating the Path to Tax Season Success

As 2023 draws to a close, business owners in Arizona gear up for the inevitable task of tax preparation. While end-of-year accounting can often feel like drudgery, when done right, the significance of proper planning to drive long-term success cannot be overstated.

From leveraging tax law changes to buttoning up charitable contributions and large purchases, ensuring your business is tax season ready before the year ends will give you peace of mind and set you up for a smooth start to 2024.

Top Tax Rule Changes to Lower Tax Liability

The first step to any end-of-year tax prep is to catalog any key tax law changes, which can significantly impact financial reporting, deductions and overall tax liability. A few of this year’s most important tax law developments include:

• Freeze on Employee Retention Credit (ERC) Claims: The IRS suspended new ERC claims due to concerns over ineligible claims and fraud. Businesses with pending, unfunded claims might consider working with their accountant to initiate the withdrawal process to avoid any potential penalties.
• Modified Pension Plan Startup Tax Credit: The SECURE Act enhances the Section 45E credit for small employer pensions, allowing eligible businesses with up to 100 employees to claim a credit of up to $5,000 for three consecutive years. This is a great, cost-effective option for employers who want to efficiently contribute to their employees’ retirement plans while also reducing tax liability.
• Net Operating Loss (NOL) Rules: Businesses with deductions exceeding gross income in tax year 2023 can carry forward anything beyond 80% of taxable income — a valuable opportunity to reduce tax liability for future income. That said, the 80% rule does not apply to losses incurred in 2018, 2019 or 2020.

Strategic Approaches to Year-End Charitable Contributions & Large Purchases

Folding philanthropy into your business tax strategy not only serves to boost your business’s community engagement but also plays a key role in lowering tax liability. Timing is crucial; making strategic donations before year’s end can significantly impact deductions for the current tax year.

That said, business leaders should bear in mind the expiration of increased limits on charitable contributions for tax year 2023. With this decrease, businesses should plan to leverage the standard limit of 60% of adjusted gross income in cash donations.

Additionally, savvy entrepreneurs should capitalize on year-end deals and depreciation benefits by making strategic large purchases. From equipment upgrades to investments in technology, these purchases not only enhance business operations but also offer substantial tax advantages through depreciation.

In 2023, businesses can leverage first-year bonus depreciation deductions up to 80% of purchase price for assets like machinery, computers and office furniture. The depreciation schedule will continue to drop by 20% every tax year through 2027.

Strategies for a Successful Future Tax Seasons

While tax credits, like the Employee Retention Credit (ERC), have provided significant relief, the recent IRS moratorium, plus expected decreases in opportunities for deductions and credits, underscores the importance of diversifying strategies beyond governmental support. Business leaders must shift focus toward sustainable financial practices that reduce reliance on such credits and promote long-term resilience.

Building financial stability requires a multifaceted approach encompassing cash flow management, operational efficiency and strategic investment. By pivoting toward sustainability, businesses can better weather unforeseen disruptions and economic uncertainties.

And in the same vein of fostering resilience, business leaders might consider a revamp of their proactive tax planning procedures in the new year, setting themselves up for smooth and advantageous future tax seasons. A few key strategies can guide the way:

• Meticulously Keep Records: Detailed and organized financial documentation is fundamental for effective tax planning and compliance. Accurate records help in maximizing deductions and ensuring reporting requirements are met.
• Conduct a Thorough Cybersecurity Audit: With the flow of readily available information, tax time offers a wide window of opportunity for cybercriminals to infiltrate sensitive systems and documentation, potentially causing organization-wide financial harm. Consider reviewing how you manage and store documentation or consider switching to an online portal, which may make it easier and more secure for employees to access their tax documents.
• Strategically Plan Tax Payments and Large Transactions: Whether ensuring your estimated tax payments are up to date or timing the sale of business assets, strategically planning around tax outcomes will optimize liability, minimize penalties and support cash flow.

Arizona’s business leaders have an opportunity to set the stage for success by leveraging year-end strategies, diversifying beyond tax credits and adapting to forthcoming tax law changes. By taking proactive measures and fostering adaptability, businesses can navigate the complexities of the tax landscape and pave the way for a prosperous future. Remember, the time to plan is now — empowering your business for success in the coming tax year starts today.

Elizabeth Hale is the CEO of eeCPA, a leading accounting resource for elite entrepreneurs and high-net-worth investors seeking transformational growth in the Phoenix metro area. A CPA and Certified Tax Coach, she has 30-plus years of experience and an enthusiasm for entrepreneurship. Elizabeth is also a co-founder of The Cash Source, which helps driven and unconventional entrepreneurs reach their potential creatively and profitably