Gene Marks is a former columnist for The New York Times and The Washington Post. He now writes weekly on the economy, business, and technology for The Guardian, The Hill, The Washington Times, The Philadelphia Inquirer, Forbes, and Entrepreneur.com. Gene, a certified public accountant, runs a financial and technology consulting firm outside Philadelphia and is the author of five books on business management. He provides commentary regularly on Fox News, MSNBC Fox Business, CBS Radio, and for the Wharton School’s Business Channel on Sirius XM. Gene is also the host of two popular business podcasts for The Hartford and Paychex.
All content herein represents the views and opinions of the author and does not represent the views or opinions of or endorsement by Toyota Material Handling, Inc. (“TMH”). Further, TMH does not make any representation or warranties with respect to the accuracy, applicability, fitness, or completeness of content. Content is for informational and educational purposes only and is not intended as financial or legal advice, and you should consult your own advisors. Links to external third-party sites do not constitute endorsement by TMH of the linked websites or the information, products, or services contained therein.”
Here’s the bad news: you’re going to have to pay taxes this year, and no one likes that. But here’s some good news: you still have time to lower your tax bill. But you need to do things now and not wait until the end of the year. What things? Here are five moves to consider.
Buy (or tell your customers to buy) capital assets.
Thanks to the 2017 tax legislation, businesses have been able to deduct a significant amount of “bonus” depreciation in the year they buy and place an asset into service. This year, the maximum depreciation is $1.16 million. However, unfortunately, and starting this year, that deduction will be limited. In 2023, you’re only able to deduct 80% of the asset (which includes equipment, furniture, computer hardware and software, and other eligible items) in the year you put it into service and must then depreciate the remaining 20% over the asset’s life. And it gets worse: in 2024, that first year deduction falls to 60% of the asset price and ultimately falls to 20% in 2026. The takeaway is to maximize that first-year deduction. You should step up your equipment purchases this year. The forklifts, trucks, and industrial vehicles that you sell are also eligible for deductions by your customers, so tell them to buy more this year if they want to maximize their tax benefits, too.
Sell some stock…then buy it back.
The stock market has risen this year, but anyone who follows the market knows that the increase is thanks to a few big stocks like Nvidia and Royal Caribbean. Many other stocks have stayed current or declined in value. If you’re holding a stock that’s in the red, but you still think it has long-term prospects, then here’s a strategy: sell it. That way, you can offset the loss against any other capital gains you may have incurred this year – or you can take up to a $3,000 deduction for that loss against your ordinary income. Now wait….for 30 days. After a month, you can buy the stock back again with no recourse or penalty. It’s called a “wash sale,” and unless that stock took off during the month you didn’t own it it’s a great way to get a tax deduction while still enjoying the long-term benefits of your investment.
Go Roth.
Thanks to legislation that passed in late 2022, you can now create and contribute to your company’s Roth 401(K) account, which is a great benefit for both you and your employees. Why? A Roth account allows you to put after-tax money into it and then watch it grow tax-free for as long as you like, without any required distributions or taxes due in the future. Think about that: you invest money in the account now, and it grows over the next years completely tax-free! After you contribute to your normal 401(K) or IRA, you should add money to your Roth. The rules allow you to contribute $22,500 in 2023 to a Roth 401(K) or $6,500 to a Roth IRA.
Maximize your catch-ups.
If you’re over the age of 50, you should be making additional “catch-up” contributions to your retirement accounts. In 2023, and subject to certain income limitations, you can contribute $7,500 to a 401(K) which is over and above the normal $22,500 contribution allowed. You can also make a similar catch-up contribution to a Roth account. You can do this every year, and now that the age for the minimum required distributions from your retirement accounts has been raised to age 72 (73 if you reach age 72 after December 31, 2022 – it will go up to 75 in 2033) you can keep your money in these accounts for a longer period.
Hire your kids.
This is all about the standard deduction, which for 2023 is $13,850. If you hire your kids and pay them up to $13,850, then they won’t be liable for any federal tax (they may have some payroll tax obligations, but these are nominal). Assuming you’re giving them reasonable work to do appropriate for their age, you can transfer wealth to them tax-free…and your business also gets a tax deduction. Even if you don’t have any kids or your kids can’t work in the business, the same rule applies to anyone, so your employees or other family members may want to take advantage, as long as they’re doing legitimate work for you in return.
Of course, all of these strategies depend on your personal tax situation, so make sure you’re talking to your accountant. And while you’re at it, here’s a bonus tip: take a look at your estimated payments and adjust. Maybe you’re making a little less than planned, which means that you may not need to make as big an estimated payment as you thought, and that can also save you money.