Year-End Business Tax Strategy for SMB Owners

“We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” - Winston Churchill

Get your tax documents together to back the tax moves we talk about here and any others you might take. Some Small Business Owners (SMB) consider temporary bookkeeping help through the end of this year and the beginning of 2022.

Year End Business Tax Strategy #1: You’re the boss. If you have employees, you have some special tax preparations to think about concerning tax preparation this year. For one, if you have employees who worked remotely, you should find out ASAP if new laws in the states where these employees worked will create reporting and payment requirements for employment taxes.

The end of the year is also a great time to make sure you’re getting the biggest tax bang out of your company’s retirement plan, anything from a SEP IRA to a Solo 401(k) to the combination of a 401(k) with a defined-benefit pension plan. Believe it or not, you have until the extended due date of your 2021 federal return to establish a qualified retirement plan and fund the plan for this year.

And oh yeah: If you took advantage earlier this year of deferring payment of your portion of Social Security payroll tax liabilities that would have been due from March 27 through Dec. 31, get ready to pay half that deferred amount by the last day of 2021.

Year End Business Tax Strategy #2: Timing’s everything. While we’re on the subject, wringing the most out of the business tax system often comes down to two things: deferment or acceleration.

If you think you’re going to be in a higher tax bracket next year, do all your billings soon and collect on as many as you can before the end of 2021. You want that money sooner so you can be taxed on it in 2021.

A much higher rate on long-term capital gains is also making its way steadily through the catacombs of Washington lawmaking – and since gain on the sale of a business or investment property is generally taxed at this rate, closing such a sale before year’s end might be the safest call.

Year End Business Tax Strategy #3: You bet your assets. There’s no sign that this goody is going to change, but you should know that 100% first-year bonus depreciation is available for qualified new and used property acquired and placed in service in calendar 2021 (think punch press or track hoe). You might be able to write off the entire cost of assets that you add this year. Regarding vehicles, passenger cars that your company puts into service in 2021 have limited deductibility, but SUVs, pickups, and vans don’t. What a deal.

Or is it? This brings us to a key concept of tax planning. Examine tax breaks for whether they’ll continue: Will they be around next year? Will your tax rate be higher in 2022? You may want to wait and get the break then to lower your 2022 taxable income.

Year End Business Tax Strategy #4: It’s your loss. The pandemic might have made this … well, let’s call it a “robust” area of activity for some businesses in recent years. Hope you weren’t one of them, but if you did get dinged on a few deals there are definitely some ducks you want to get in a row regarding losses.

Did you have bad debts in 2021? You can get a write-off if that debt is wholly uncollectible by the end of the year. Damaged or abandoned property can generate ordinary losses for specific assets; so can some insolvent subsidiaries.

Also, make sure that your business has filed claims for all net operating loss (NOL) carrybacks. You still have until Dec. 31 to file for NOLs originating in 2020.

Year End Business Tax Strategy #5: Credit due. The taxman isn’t completely without heart, and the feds, along with a lot of states and local governments, offer a lot of tax credits for things like research and development, innovation and technology, renewable energy, and investing in low-income communities.

Stroll back through your 2021 memory lane to make sure you’re claiming all the tax credits you might have coming – and, just as important, begin eyeing possible tax credits for your activities planned for 2022.

This is just a sample of business tax strategy to help you save before the end of the year. Also consider the right kind of business entity for the best tax leverage or how your good state’s taxes might influence your moves between now and New Year’s.

Happiest of holidays.

BE THE ROAR not the echo®

Janet Behm