End of Year Tax Planning Tips for Small Businesses

by Chris Giorgio | Dec 14, 2021 | Small Business, Startup Business, Taxes

According to the IRS, taxpayers left 1.3 billion dollars of unclaimed tax money on the table in 2021. That’s money that could be used to funnel back into your small business. As the end of the year approaches, it’s important to consider how much you can save simply by having the right tax measures in place. 

At Fully Accountable, we believe small and medium-sized businesses should be able to get the most out of their tax benefits. That’s why our experienced team of digital accountants ensures our clients have strategic tax management that keeps them informed about critical factors, such as the types of claims businesses qualify for and what processes owners can implement to maximize their benefits. 

Don’t leave money on the table in 2022. Continue reading to learn more about how simple, strategic tax plans can set you up for success next year.  

Review Your Business Infrastructure

As your business and income grow, you might have to modify your business infrastructure as well. Part of this process hinges on changing the corporate structure of your business. 

However, before doing so, you should consult with a CPA or certified financial planner to determine the best course of action. Review your business structure at least every few years, but it’s best when you can evaluate your structure on a yearly basis. 

Claim Bonus Depreciation 

As a small business owner, you likely purchase computers, equipment, furniture, and other assets for your business. The tax code often calls for you to depreciate those items over their lives. However, bonus depreciation lets you write off those costs on your 2021 tax return. Thus, if you want to purchase new equipment or upgrade your tech, it’s wise to buy it before the end of the year. 

It should be noted that not all assets qualify for bonus depreciation. For example, buildings and their structural components are not eligible. Your assets must also be “placed in service” in 2021. This means you need to start using the equipment during the year for it to be eligible for depreciation. Therefore, if you order office laptops on December 24th and they don’t get delivered until after the holidays, your purchase won’t be eligible for depreciation. 

Delay Your Income and Accelerate Your Expenses

Most small business owners use cash basis accounting for tax purposes because of its valuable planning opportunities. Using this method, business owners recognize income when received and expenses when paid. 

If you want to maximize your 2021 tax benefits, you might want to see if you can defer some incoming payments until after the first of January, 2022. Many companies might not have the luxury of being able to wait until 2022 to send your client an invoice. However, if you can, you won’t have to claim that money on your tax return. 

By reducing your income, you also lower your business income, reducing the amount of income subject to self-employment tax. As a business owner, you pay 15.3 percent in self-employment tax. When you reduce your total income, you reduce your taxable income. 

In the same vein, companies can bolster their tax benefits by paying their expenses before the end of the year. For example, if you were planning on improving your production line in 2022, you can benefit from paying for the new machinery before the year’s end. 

Delaying income and taking care of expenses early is one of the simplest ways to afford your business tax benefits, but it hinges on the health of your cash flow. Using an outsourced accountant can ensure you stay in positive cash flow and help you decide how much income you can delay and how many expenses you can afford to address early. 

Establish a Retirement Plan

The Setting Every Community Up for Retirement Enhancement (SECURE) Act provided smaller companies with incentives to set up workplace retirement accounts. Businesses that sign up for this tax credit can receive up to $5,000 per year to help offset the costs of setting up the plan. These costs include fees to set up and deliver the plan to employees. 

Businesses must also meet specific criteria to qualify for the SECURE Act. They must meet the following requirements: 

  • Have 100 or fewer employees who received $5,000 in compensation during the prior year. 
  • Have at least one plan participant who isn’t highly-compensated. 
  • Have a roster of employees who didn’t participate in a prior retirement plan offered by your business in the past three years.

Additional credits exist to increase employee participation in retirement plans. An example of these credits is the Small Employer Automatic Enrollment Credit that provides $500 per year for three years to small businesses that include auto-enrollment features in their plans. Combined, the two credits can reduce your tax obligation by $5,500 in the first year. 

Find a Charitable Cause 

Charitable contributions aren’t typically deductible for small businesses. They are usually only deductible for C corporations. But small business owners can still access these tax breaks by funneling the contributions through their individual tax returns. 

To achieve this tax benefit, small business owners must itemize their deductions instead of opting for the standard deduction. The exception to this rule requires the use of the Coronavirus Aid and Relief Act (CARES) to deduct up to $300 in charitable donations as an income adjustment. The $300 deduction only applies to cash donations made to specific charitable organizations and if you make non-cash donations, they are not eligible for the deduction. 

For itemizers who make non-cash donations, they can claim non-cash donations under Schedule A. These people must donate by the end of the year, and donations made after December 31st cannot be deducted until the following year. 

Contribute to an HSA

Health savings accounts (HSAs) are accounts that let those with high-deductible health plans save out-of-pocket medical expenses in tax-advantaged accounts. Contributions to an HSA are tax-deductible and the money grows while in the account. Withdrawals are also tax-free as long as you use them to pay for healthcare expenses that meet the requirements.

In 2021, you can contribute up to $3,600 for individual HDHP or up to $7,200 for family coverage. One of the benefits of contributing to an HDHP and HSA is that you can still access the benefits even if you miss the December 31st year-end, you can contribute to an HSA in 2022 and claim it on your 2021 tax return. The deadline to make contributions is April 15th, 2022. 

Claim Employee Retention Credits 

The CARES Act also led to the Employee Retention Credit (ERC). The act gives incentives to businesses that keep employees on the payroll during the pandemic and provides a credit against the employer’s portion of payroll taxes. 

Because the Employee Retention Credit is refundable, you can receive a tax break if the calculated credit is greater than your payroll tax liability. If this is the case, the amount of the tax break would equal the calculated credit amount. 

The ERC expires at the end of 2021 but you have until December 31st to claim it. You can receive up to 70 percent of the first $10,000 of qualified wages per employee each for each quarter you apply. 

The regulations for qualifying are as follows: 

  • Your business must have fully or partially suspended operations during the governmental mandate from the pandemic. 
  • Your business must have experienced a decline in gross receipts of 50 percent or more compared to the corresponding quarter from the previous year. 
  • You must have launched a “recovery startup” business after February 15, 2020 and have annual gross receipts of 1 million dollars or less.

The ERC is a credit against payroll taxes. If you qualify for this credit, you won’t have to wait until filing Form 941 to receive the benefit. You’re also allowed to reduce the employer share of Medicare tax payments while anticipating the credit or you can request an advance using Form 7200.  

Consider Outsourcing Your Accounting to Maximize Your Tax Benefits

We here at Fully Accountable understand the complex nature of dealing with taxes as an emerging business. Our full-service team of digital accountants and fractional CFOs can help determine what tax breaks you qualify for and how to maximize your returns. 

Contact us today to learn more about how you can plan for the year ahead by utilizing our services. 

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Chris Giorgio is the President of Fully Accountable. Fully Accountable is an outsourced accounting firm specializing in eCommerce and digital businesses. Chris has served as a CPA, CFO and has over 14 years of experience in the accounting and finance industry. Chris has dedicated his career towards helping entrepreneurs and high-level business owners achieve greater profitability through specialized outsource accounting functions.


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