Small Business Tax Planning Strategies for 2023

Small business tax planning involves assessing your current financial situation and strategizing how to reduce your tax liability for the upcoming year. With 2023 underway, ensuring you take advantage of any tax deductions or credits available to help reduce your overall taxable income is essential.

Tax planning helps small business owners ensure they pay the lowest amount of taxes possible, giving them more funds to reinvest back into their companies. However, tax season is often associated with stress. Fortunately, small business owners in the greater Portland metro area don’t have to stress as we at Fordham & Co. can help you with your 2023 tax planning strategies.

Small Business Tax Planning Strategies

Early planning and taking advantage of available deductions or credits are crucial to tax savings. Here are some tax strategies that small business owners in Hillsboro, OR, should consider for 2023:

Seek Ways to Reduce Your Adjusted Gross Income (AGI)

Your adjusted gross income, or AGI, is the total of all taxable income before deductions and credits. Reducing your AGI can help lower your overall tax bill. Additionally, by keeping your income in a lower tax bracket, you can avoid additional taxes like the Medicare surtax.

One way to reduce AGI is by contributing to a Health Savings Account (HSA). Contributions to an HSA are tax-deductible and often qualify small business owners for a tax credit. Other ways to lower AGI include making charitable or individual contributions to retirement accounts.

Take Advantage of Business Tax Deductions and Credits

Ensure you take advantage of small business tax deductions and credits. Popular small business deductions include:

  • Business use of your home
  • Health insurance 
  • Vehicle expenses 
  • Retirement contributions 
  • Interest on business loans

In addition to small business deductions, you can also leverage tax credits, which include:

  • Tax credit for hiring employees from certain target groups 
  • Research and development (R&D) credit

Revisit Your Exit Plan

If you’re considering transitioning out of your business, consider how your exit plan affects your taxes. For example, if you opt to liquidate your business, you might owe capital gains taxes on any profits from the sale.

However, there are ways to ensure you won’t have to owe taxes when you transition out of your company. For instance, you could pay lower taxes by reinvesting profits into a qualified small business stock. Other options could result in lower taxes, such as gifting or transferring ownership to family members.

Wealth Planning

Wealth planning involves making decisions that impact your short-term and long-term financial goals. When you incorporate wealth planning into your company’s tax strategy, you can reduce the taxes owed by diversifying your investments and taking advantage of deductions like 529 plans or retirement accounts with tax benefits.

Consider Fringe Benefits for Employees

Small business owners in Hillsboro, OR, can also provide fringe benefits to their employees. Health insurance or transportation subsidies can help reduce your taxable income while improving employee morale and productivity.

Fringe benefits attract and retain employees, reduce your company’s taxable income, and provide additional compensation to your team. Offering them helps you reduce overall tax liability.

Ensure You’re Operating Within the Correct Business Entity

Choosing the wrong business structure could lead to paying higher taxes than necessary. The type of business entity you choose affects how you pay taxes. Most small businesses are set up as a sole proprietorship, an LLC, a corporation or a partnership. Each type has pros and cons and should be chosen as part of an overall business and tax strategy.

Stay Up-to-Date With Small Business Tax Laws

The recently passed Inflation Reduction Act (IRA) could significantly reduce small business taxes for the tax year 2023. This act allows owners to deduct a portion of the inflation adjustment from their taxable income.

For example, you can deduct up to $25,000 in costs related to making company improvements for 2023. This deduction aims to help small business owners offset the cost of capital investments necessary for growing their businesses. Additionally, you can claim deductions for qualified transportation expenses, health insurance premiums, and start-up costs.

Review Your Current Accounting Method

You should also review your current accounting process to ensure you use the most practical approach. The accounting method you utilize can impact the amount of taxes you owe in any one year.

For example,  depending on your business, choosing an accrual basis of accounting may be more or less advantageous than utilizing a cash basis. Determination of the best method of accounting is dependent on your operations, line of business and type of business entity.  

Partner With Expert Taxation CPAs

Finally, small business owners in the greater Portland metro area should consider partnering with a CPA for planning and preparation needs. A CPA specializing in small business taxation can help you make the most of your deductions and credits while ensuring you comply with all applicable tax laws.

Why Choose Fordham & Co. for Small Business Tax Planning?

At Fordham & Co, we specialize in small business taxation. Our expert CPA team has years of experience helping small businesses throughout Washington County and the greater Portland metro area with their tax planning needs. We provide personalized, knowledgeable service that aids clients in reducing their tax liability.

We understand the complexities of small business taxation and are committed to helping you plan for the future. We provide comprehensive tax planning services to help you reduce your taxes and ensure you’re leveraging available deductions and credits. Our team constantly monitors changes in federal, state, and local small business tax laws to ensure that clients are up-to-date with the latest developments.

Contact Our Experts Today

If you’re a small business owner and you need help with tax planning for the upcoming year, contact Fordham & Co. today. Our team of experienced Certified Public Accountants in Hillsboro, OR, can provide personalized advice to small business owners on how best to plan for their taxes in 2023.

We’re dedicated to helping you make the most of your deductions and credits while ensuring you remain compliant. Contact us today to learn more about how small business tax planning can help you.

We look forward to helping you take control of your taxes!