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Your End-of-the-Year Checklist for Small Business Owners

2022-11_Your Year End Checklist

By Jeff Gilbert

It’s hard to believe that another tax season is just around the corner, but 2022 is almost at an end. With a lot of the pandemic-era programs petering out, it’s important to know what lies ahead to be prepared for what’s to come. 

Looking for a checklist to help minimize your tax burden and start 2023 off ahead of the game? Here are five items to review now to help wrap up 2022.

1. Review IRS Elections (Especially if You Had a Net Operating Loss)

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 our 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. 

For example, let’s say you found out you could save more in taxes by structuring your business as an S corporation instead of an LLC. If you’re a new business, you have two months and 15 days from the day you file your articles of formation to file your S corp elections. So, if you filed your articles of formation on March 1, you have until May 16 to file your S corp election for it to take effect that same tax year. 

2. Review Your Deductions

The CARES Act brought about major 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 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. 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:

  • Advertising
  • 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 

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.

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, 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. 

Choosing to add an employer-sponsored retirement plan to your company can be a great way to take advantage of tax credits, including those for setting up a new plan and auto-enrolling employees. You may also be eligible for additional tax deductions by making qualified employer contributions on behalf of your employees. It’s important to review your options with a qualified financial professional before making a decision on a retirement plan as each plan type comes with its own unique benefits and drawbacks. 

5. Review New 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.

How We Help

At Balboa Wealth Partners, we have a diverse team of experienced professionals who maintain a high-touch, personalized experience with our clients. We seek to serve as our clients’ most trusted financial consultant and help them make smart decisions with their money. By having a dedicated team of experts on your side, we hope you can feel more confident as you navigate life’s challenges and planning opportunities. If you would like to learn more, give me a call at 949-445-1465 or email me at [email protected].

About Jeff

Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With over three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Orange County, Jeff works with clients throughout the entire country. To learn more, connect with Jeff on LinkedIn or email [email protected]. 

Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.

Securities offered through Kingswood Capital Partners, LLC, member FINRA, SIPC.

Balboa offers advisory services independent of Kingswood. Neither firm is affiliated.