3 strategies to prepare for 2023 taxes and avoid surprises

Can you believe it’s almost the end of the year? That means the holidays are coming up, which is exciting for many of us! It also means it will be time to file your 2023 taxes before you know it!

Many individuals feel anxiety during tax season because they dread having a big tax bill or simply have no idea if they will owe taxes or not. If you identify with these feelings of anxiety and uncertainty, especially as a small business owner, then this article is for you!

Doing your taxes should not feel overwhelming or stressful. With proper planning and guidance throughout the current year, you can approach your taxes more positively and help avoid surprises (or at least bad surprises!).

Here are three steps you can take today to give you some peace of mind and certainty on your 2023 business taxes:

1. Start your bookkeeping now if you haven't done so already.

Please don’t wait until next year to go through all of your business receipts and figure out how much you made for the year. First of all, this is not a good habit as a business owner since you want accurate financials throughout the year to help you make informed business decisions.

Also, if you’re trying to do all of your bookkeeping at once at the end of the year, you may leave out significant expenses that could help you reduce your taxable income.

Even if you’ve done your own bookkeeping throughout the year, you may want to consider having an experienced accountant review the accuracy of your bookkeeping. Unfortunately, inaccurate numbers in your bookkeeping will lead to an inaccurate income tax return and to either an overpayment or underpayment of taxes.

It may seem simple to classify transactions in QuickBooks, but do you truly understand what goes on the Balance Sheet versus the Profit & Loss? Did you know the principal portion of your business car loan payments should not be an expense but rather reduce the liability of a car loan (a liability) on your Balance Sheet?

Investing a few hundred dollars in an experienced accountant could really pay off at the end of the day to help minimize the likelihood of an IRS audit due to an understatement of income because your bookkeeping was not properly prepared.

Takeaway: Proper bookkeeping is the key to financial success.

2. Make your 2023 tax estimated payments now.

The IRS and state income taxing jurisdictions have a rule of pay-as-you-go. Which means the IRS and states ask that you pay your income taxes throughout the year as you earn your income. If you wait until you prepare your taxes next year, you may likely owe interest and penalties for not paying your income taxes timely throughout the year.

Ideally, as a business owner, you should pay your estimated taxes each quarter throughout the year. The due date for the first three quarters has already passed; the last one was September 15th, 2023. If you missed the due dates, we recommend sending a payment as soon as possible to avoid more interest and potential penalties from accruing.

The quarter 4 estimated payment is due January 15, 2024 for the IRS and most states.

Need guidance on how much to submit for your estimated tax payments? Please contact us and we can help you with this.

Takeaway: Avoid large income tax bill surprises come tax time, pay your estimated income taxes as you go.

3. Identify income tax savings strategies.

Tax planning should start at the beginning of the tax year and way before you file your income taxes.

If you wait until 2024 to think of ways to reduce your taxes, it might be too late to implement some strategies.

There are some simple strategies such as contributing to a retirement plan with pre-tax money, making charitable contributions, or buying a vehicle or equipment to reduce your taxable income.

Other more involved strategies could be changing your business entity type.

For example, you can make an S-corporation election for 2023 to help you reduce self-employment taxes, which is an additional 15.3% self-employment tax on top of your income taxes for certain types of taxpayers such as Schedule C filers.

We recently applied this strategy to one of our clients who is expecting $100,000 in net income for 2023. By doing an S-corporation election earlier in the year, she reduced her quarter 3 estimated tax payment by thousands of dollars, which was such a relief to her because she was short on cash.

Would you like to know if your business is the right fit for an S-corporation election to help you save on taxes? Please schedule an advisory call with us today and we’ll gladly help you assess your situation.

Again, with some planning, taxes should not feel stressful.

Takeaway: Start planning as early as possible and you will find that peace of mind and tranquility to go enjoy the holidays before year-end!

Looking for some guidance to plan for 2023 taxes? Please book a complimentary call with us by reaching out to giselle@bienestarcpa.com or jose@bienestarcpa.com.

Happy planning!