Year-End Planning Can Boost Your Business

Year-end planning plays a crucial role in analyzing goals and forecasting conditions. By taking proactive steps and making strategic decisions before the year ends, you can increase tax benefits, reduce potential liabilities, and streamline your operations.

Review some focus areas to help you navigate the process with confidence.

Key areas of tax planning

In business tax planning, there are three key changes to consider:

1. Bonus depreciation is gradually phasing out, allowing for a write-off of 80% of qualifying fixed assets this year, and 60% for 2024. Consider placing fixed assets in service before year end to take advantage of the higher bonus depreciation available in 2023
2. Research and development expenses need to be capitalized and amortized over five or 15 years.
3. The 163(j) provision that limits the deduction of interest expense is more restrictive in 2023, just as it was in 2022. Consider increasing interest income or re-leveraging your business in order to avoid this deduction deferral.

Also, starting in 2026:

• Income tax rates may increase from 37% to 39.6%
• The qualified business income deduction of 20% will no longer apply
• The estate tax exemption amount is set to decrease

Planning for these changes is crucial, especially for income and deductions in the coming years.

Additionally, be aware of changes to the employee retention credit (ERC). The IRS has placed a moratorium on ERC refunds due to fraud and issued guidance on how to pay the credit back if you are concerned you took an incorrect or undue credit. If you have not claimed the credit, there is still time. Work with a trusted advisor to determine if you are eligible.

How you can benefit from the Inflation Reduction Act

The Inflation Reduction Act is a new act aimed at promoting green energy and carbon neutrality. It introduces various credits and incentives in three categories: investment tax credit, production tax credit, and manufacturing credit.

Key credits include the 30C credit for charging stations, production tax credit for renewable energy production, investment tax credit for energy conservation purchases, and manufacturing credit for U.S. manufacturers.

These credits provide financial benefits and opportunities for individuals and businesses involved in green energy and manufacturing.

Effective inventory management

Understanding and implementing effective inventory management strategies can help you reduce costs, streamline operations, and improve customer satisfaction and loyalty. Enhancing cash flow through inventory management can boost business growth and financial stability. Effective communication with suppliers can help prepare your business for future inventory needs and potential challenges in the supply chain.

ABC analysis is a technique used in inventory management to categorize items based on their value and prioritization. The items are divided into three categories: A, B, and C. Category A represents high-value items that require close monitoring, B represents medium-value items, and C represents low-value items that require less attention. ABC analysis can help businesses prioritize inventory items and allocate resources effectively. Obsolete and excess inventory should be either sold, disposed of, donated, or returned to suppliers.

Cycle counting is an inventory auditing method where a subset of inventory is counted during regular intervals. It involves counting a specific group of items on a rotating basis, verifying that each item is counted at least once within a specified timeframe. This method helps maintain inventory accuracy and identify discrepancies or errors in the inventory records. Cycle counting also allows for better inventory control throughout the year, reducing the burden of year-end physical counts.

Preparing for 1099 season

Form 1099s must be filed if royalties, rents, non-employee compensation, medical healthcare payments, or attorneys’ fees have been paid out.

1099s have two main forms: the miscellaneous and the non-employee compensation. The Form W-9 is necessary to determine if a 1099 needs to be sent out or not. It’s recommended to request a Form W-9 before payment is made. Implementing processes and procedures to stay in compliance with the IRS can help avoid penalties.

The Form W-9 provides important details such as the name, address, and taxpayer identification number (TIN). Having this information beforehand can improve accuracy in reporting and help you:

Keep track of payments — Maintain detailed records of payments made to each vendor or contractor throughout the year. This includes the amount paid and the purpose of the payment.

Classify vendors correctly — Properly classify vendors or contractors based on the nature of their relationship with your business. Determine if they are independent contractors or employees to improve accuracy when reporting.

Verify taxpayer identification numbers (TINs) — Use the IRS TIN matching program to verify TINs provided by vendors or contractors.

Use accounting software — Use accounting software with built-in tools and features to assist with 1099 reporting. These tools can help automate processes, track payments, and generate accurate reports.

Stay updated on regulations — Stay informed about any changes to tax laws and regulations related to 1099 reporting. This includes understanding thresholds for reporting, deadlines, and any updates to reporting requirements.

Reconcile vendor statements — Regularly reconcile vendor statements with your own records to increase accuracy and help identify discrepancies or missing information.

Seek professional advice — If you have complex reporting requirements or are unsure about specific situations, consult a tax professional for guidance.

Tips for a successful year-end close

Year-end close is an important process to wrap up the books and mark the turning point of moving to the 2024 budget. It’s a great opportunity to analyze the past 12 months, as well as get a clean set of books to your tax providers.

To prepare for a successful year-end close, start with a timeline and schedule. Reconcile the prior year’s retained earnings, cash and credit card transactions, and all balance sheet accounts.

It’s a good idea to take inventory and do a fixed asset physical count to clean up the fixed asset list. Also, review any new debt and equity arrangements, as well as new leases started in the last year.

After the year-end close is completed, present the data to key stakeholders, finalize any year-end targets and incentives, and send tax data to your CPA. Start planning for 2024 by staying up to date on industry news, finding relevant trade publications, and incorporating any changes since the 2023 budget into the 2024 budget.

Having a clear understanding of the current economic and legislative landscape can provide a solid foundation for making informed decisions on the future of your organization. Although the 2024 election may bring fiscal and regulatory changes, it’s important to remain flexible.

How we can help

Set up your organization to address important matters like tax planning, operational strategies, and leading financial practices so you can finish the year strong.

CLA’s experienced professionals can help you take advantage of potential planning opportunities and chart a course forward to meet your business’s needs.