Smart Tax Planning: Five Essential Tips for Mid-sized Businesses in 2023
Effective tax planning is vital for any business, and for mid-sized enterprises, it can be a game-changer. The changes brought about in the tax landscape in 2023 are offering new opportunities for these businesses to strategically reduce their tax liabilities.
5 Essential Tax Planning Tips
Here are five essential tax planning tips for mid-sized businesses to maximize deductions and credits.
Leverage Cost Segregation Studies: An often overlooked tool, cost segregation is a tax planning strategy that allows businesses to classify assets for faster depreciation. This approach provides a significant upfront tax deduction, boosting cash flow. If you've recently acquired or constructed a building, you might be surprised by the tax savings this strategy can provide.
Keep a Close Eye on Carryovers: Some tax benefits have limitations that can prevent businesses from using them in the current year but can be carried over to future years. This includes net operating losses, capital losses, and general business credits. Review past tax returns for any unused carryovers, and incorporate these into your current tax strategy.
Take Advantage of R&D Tax Credits: In 2023, the R&D tax credit has been expanded to more sectors. Businesses investing in the development of new or improved products, processes, software, techniques, inventions, or formulas may be eligible. Remember, the definition of R&D for tax purposes is broad and doesn't only apply to laboratories and tech companies.
Maximize Section 179 Deduction: The Section 179 deduction allows businesses to deduct the full purchase price of qualifying equipment and software purchased during the tax year. For 2023, the deduction limit has been increased, so make sure to factor this in when planning your business’s capital expenditures.
Explore the Employee Retention Credit: This credit, extended through 2023, is designed to encourage businesses to keep employees on their payroll during difficult economic times. If you've maintained your staff in spite of challenges, make sure you're not leaving money on the table.
Remember, effective tax planning is a year-round effort. It requires the consistent tracking of business operations and staying updated on tax laws. By leveraging these tips and working with a knowledgeable tax professional, mid-sized businesses can navigate the complexities of the tax code and potentially save a significant amount of money. As the saying goes, it’s not just about how much you make, but also about how much you keep.