The end of the year has always been one of the most hectic times for business owners. Moving forward into the new year, it's always a good exercise to thoroughly assess your financials and your tax options, enabling you to get a realistic picture of how the business performed - and what changes you might want to implement for future growth - in other words, preparing your business for 2023.
Have You Completed Your Year-End Tax Planning?
As a small business owner, hopefully you may have already completed your year-end tax planning. When it comes to financial planning, putting it off until the last minute can feel overwhelming as you prepare to roll into the new year. If you haven't yet completed the process of looking at all of your options, don't despair - it's not too late.
To avoid last-minute tax planning, it's wise to set aside time in your schedule each week at the end of the year (perhaps once a week for the rest of December) to sit down and assess what needs to be done in order to determine how to move forward with your business in 2023. Ideally, you want to learn whether your business is growing or declining, and then use that data to make future projections. Don't miss your opportunity to recap 2022, analyze the lessons learned, and make realistic decisions about how to streamline your business in the new year.
Most importantly, tax planning will help you make smarter decisions that will eventually yield tax savings. This is done in a variety of ways. Working with your CPA or business advisor, you might discover new ways to lower your tax rate or reduce the amount of taxable income that you file. With the right guidance, you can also maximize tax credits for your business, while avoiding costly mistakes.
The 2022 legislative session resulted in various forms of debt and income relief available to some small or family-owned businesses. These are certainly worth looking at, although not all of them may apply to every business. It is always helpful to be aware of what new forms of relief are out there. Your CPA financial planner or small business advisor is well versed in all of the new rules and will be able to assist you with the best tax planning strategies for your business. A comprehensive review might cover cash flow, risk management, investment planning, or any other issue that needs to be kept fresh and updated, based on what's being implemented in 2023.
Set New Financial Goals Based on Last Year's Performance
Year-end is the perfect time to assess your business’s financial health. Use your financial statements to learn whether your business had gains or losses throughout the year. These statements include, but are not limited to, your balance sheet, profit and loss statement, cash flow, and statement of retained earnings. Once you and your CPA or advisor have ascertained this information, look closely at the causes behind each gain or loss. Use your findings to make adjustments for the new year. Perhaps you need to cut back on certain expenses as you build your budget for the new year.
Compare your 2022 statements to the previous year to see whether you experienced financial improvement. Comparing year-over-year enables you to really see the progress your business has made, and to determine the health of your finances. Sometimes this assessment will lead to a small business facing an entity choice decision, meaning you might want to consider the tax benefits of restructuring to a more business-friendly entity.
Year-end financial planning is an important part of running a successful business. To keep your business thriving, you need to understand how you can use last year's performance to create more efficient strategies going forward. With your CPA financial planner and small business advisor on your side, you will be able to customize the best methods for your particular business, with the goal of lowering your tax rate while getting the most out of your income and deductions.
Charles P Myrick CPA, a Washington DC tax preparation firm, specializes in accounting and tax planning services for new business start-ups and entrepreneurs. If you are a new entrepreneur, give us a call. We invite you to learn more about the small business accounting services that are available: (202) 789-8898.