YOUR TAX PLANNING CHECKLIST FOR YEAR END 2022 AND THE NEW YEAR 2023
Business Planning
Businesses large and small have unique considerations when it comes to retirement planning and tax planning .
Retirement Contributions
Solo 401 ( k ) Plan Solo 401 ( k ) plans allow for a tax-deductible pension contribution for business owners of up to $ 67,500 for those over 50 and $ 61,000 for those under 50 . This applies to 1099s , S-Corps , LLCs , Schedule C businesses . Employees are not eligible .
SEP ( Simplified Employee Pension Plan ) IRA Up to $ 67,500 ( over 50 ), $ 61,000 ( if under ) may be contributed to an SEP IRA . Only the employer contributes up to the lesser of 25 % of each eligible employee compensation and $ 61,000 . Must include all eligible employees .
Defined Benefit / Cash Balance Plan 100 % of taxable income may be contributed up to $ 265,000 per year to this plan in 2023 ($ 245,000 in 2022 ). This must cover all eligible employees working > 1 year . The owner usually captures approximately 80 % of contribution benefits . Profit-share requirements can be modest . Defined Benefit plans are complex trustbased vehicles , with annual costs (~$ 10K ), and require actuarial valuations .
Depreciation - Plant and equipment expenditures The 2017 TCJA significantly expanded tax write-offs for qualifying expenditures on plant and equipment through first year Special Depreciation ( Section 179 ) and Bonus Depreciation ( Section 168 ).
Net Operating Losses ( NOLs ) The CARES Act of 2020 introduced a five-year carry-back for Net Operating Losses ( NOLs ) generated in years 2018 through 2020 . This NOL carry-back ability , combined with the removal of the Excess Business Loss provisions for tax years beginning before 2021 , presents planning opportunities for those with NOLs or who may be able to generate losses due to depreciation write-offs .
Qualified Business Income ( QBI ) Deduction Pension contributions and charitable donations are not only tax-deductible in themselves , but can bring in a secondary benefit by lowering taxable income for business owners who are above the Qualified Business Income ( QBI ) deduction thresholds . When business income is lowered through pension and charitable contributions , the QBI 20 % deduction may get turned on – effectively one tax deduction can lead to a secondary deduction . This additional benefit is particularly relevant where the business is a Specified Service , such as in healthcare and legal practices .
The new year brings new opportunities for implementing tax strategies . This checklist can give you a starting point for what to consider . We at BakerAvenue can help you navigate through the complexities of tax planning and are committed to helping you through life ’ s transitions .
Contact us to start the conversation .