Your End-of-the-Year Checklist for Small Business Owners
By Bryan Lee, CFP®, MBA
The end of the year is a whirlwind of activity for most small business owners. But now is not the time to put financial and tax items off to the side. It’s important to finish up 2022 on a high note so you can start 2023 off right. Below are 5 items to review before you wrap up 2022 for good.
1. Review IRS Elections
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 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. Even if your entity has already been formed, an S Corp election for an LLC could be advisable in certain circumstances.
2. Review Deductions
The CARES Act brought about some tax incentives to people who donate to charity in 2020 and 2021, but the provisions of this Act have not been extended to 2022. This means you can no longer write off up to $300 ($600 for married filing jointly) in cash donations from your tax return if you take the standard deduction. And itemized charitable deductions are once again capped at 60% of your adjusted gross income for cash donations made (assuming you are planning on itemizing with the higher standard deduction). If you were planning to take charitable deductions in 2022, be sure to review them carefully to make sure they meet new requirements.
There are still deductions available for basic business expenses and these can help reduce your taxable income significantly. Some common examples of business expenses include:
- 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
- Business meals (which are 100% deductible for the rest of 2022, but switch back to 50% deductible in 2023)
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. If you are planning on buying new equipment for the business next year, accelerating those purchases before year-end if you have the cash to do so could be beneficial as it would reduce your 2022 tax bill.
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 business forms with only one employee (the business owner and potentially their spouse), 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:
- Are at least 21
- Have worked for the employer in at least 3 of the last 5 years
- Received at least $650 in 2022
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.
5. Review Due Dates & Filing Methods for 1099s
Starting in 2020, any freelancers or contract workers who earned more than $600 from your company will receive Form 1099-NEC instead of 1099-MISC. 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.If you haven’t already begin collecting W-9s from every contract worker that you paid this year to avoid scrambling to get that information before the deadline.
How We Help
Life gets busy and complicated at times, and it’s easy to lose sight of why you do what you do. No matter where you are in life or how complex your financial situation is, at Strategic Financial Planning, we can help you organize, protect, and grow the assets that you count on to provide for you and your family. If you’d like to learn more about our process, call (972) 403-1234 or contact us online to set up a complimentary get-acquainted meeting so we can see if we are a good fit!
Bryan Lee is the founder and president of Strategic Financial Planning, Inc., an independent, fee-only financial advisory firm. With more than 27 years of industry experience, Bryan uses a unique client-first financial life planning approach and process to help his clients get the most out of life. Bryan earned his Bachelor of Business Administration in finance and his MBA in international finance from the University of North Texas. He is also a CERTIFIED FINANCIAL PLANNER™ professional.
Bryan is actively involved in his community and industry and has served on the boards of several associations and charities, including the Dallas/Fort Worth chapter of the Financial Planning Association, the National Association of Personal Financial Advisors, Family Services of Plano, the CITY House, and the Journal of Financial Planning. Bryan has been featured in local and national media, including The Wall Street Journal, Investors Business Daily, CNNfn, USA Today, SmartMoney, Kiplinger’s Personal Finance, Financial Planning Magazine, The Dallas Morning News, and Dow Jones Newswires. And, he has been recognized as a Five Star Wealth Manager and one of Dallas’s Best Financial Planners in D Magazine every year since its inception and recently as a Top Wealth Manager. To learn more about Bryan, connect with him on LinkedIn.