Ensure that 2022 tax season is sweet, and not a bottom-line heart break. AB Financial Group offers a sweetheart deal, our Top 5 Tax Strategies to consider.
Strategy 1 – Close Off 2021
Along with typical calendar year closing tasks, 2021 year-end accounting may have unique tasks. Due to the evolving Internal Revenue Service (IRS) tax code, and the economic climate of the pandemic, extra attention to detail may be required. A few examples include:
- Federal CARES Act obligations from 2020 – Businesses may have deferred their position on employee social security payments. 50% was due December 31, 2021, the final portion, December 31, 2022. Accurate communication, recording and payment is required.
- Federal Employee Retention Credit (ERC) – Timely repayment status on ERC funds – provided to retain employees during the pandemic – will require special handling as to 2021 Q4 payment. For qualifying companies, including all 2021 ERC benefits on the 2021 tax return is essential to calculate the credit reduction to wages. AB Financial Group can provide the ERC guidance required.
- Net operating carryover rules – Changes to these regulations reduce 2020 loss carryover to 80% of revenue. This will continue to impact 2021 tax liability, requiring accurate accounting.
- Business loss limitations – The accounting of business loss is now clarified to exclude wages as a business loss offset. A reconfiguration of the entity, to ameliorate impact to the bottom line may be indicated.
- Interest expense limitation – The benefits of increased interest expense limits during the CARES Act period revert to earlier levels for 2021, with a reduction from 50% to 30%. Businesses must calculate and remit payment at the correct level.
These examples highlight some of the complexities of closing out 2021. Let AB Financial Group provide the expertise to complete a successful finale.
Strategy 2 – Consider a business status change for 2022
AB Financial Group has the expertise to evaluate a company’s tax position such that a change in tax status may benefit the bottom line. Depending on Financial Accounting Standards Board regulations, ownership, structure, mission and more, an enterprise has various designations available which may improve tax status. Options include:
- Sole proprietorship – Self-employment and personal tax
- Partnership – Self-employment (excluding limited partner(s) and personal tax)
- Limited Liability company (LLC) – Self-employment tax and corporate or personal tax
- C-Corporation – Corporate tax
- S-Corporation – Personal tax
- B-Corporation – Corporate tax
- Nonprofit – Exempt, profit distribution unavailable
- Combined status – non-standard arrangements, requiring legal and accounting guidance
A change of status may improve your tax position. AB Financial Group can provide further information to clarify the optimal tax status for 2022.
Strategy 3 – Retool for 2022
Add or refine essential tools to set up for success in 2022. This will include goals and analytics tools. Consider these examples.
Goals – Know the destination for 2022.
- Revenue goal – Determine the revenue target. Be realistic, specific and committed. Communicate the goal with stakeholders, partners, team members and vendors. Agree on strategies to reach the target.
- Spending goal – To facilitate the revenue goal, set up a spending plan. Once the expenditure goals are identified, design accounting procedures to create monthly reports, track any variance, and adjust accordingly. To support the spending goal, commit to monthly financial briefs.
- Performance goals – Consider formalizing three key performance indicators (KPI). These will confirm the business is on track to meet its target. It could be the number of new clients, frequency of repeat business, or any meaningful data point. Check in and course correct regularly.
Tools – Upgrade for 2022
Take advantage of tools designed to provide data to manage the tax position of the business. Consider:
Cloud accounting – Switch to cloud-based accounting. The benefits are many for tracking of the taxation position, a top essential analytic. Time consuming and error-prone tasks are automated, saving staff time. Income and expenditure data flows directly from a company’s bank to its books. 24/7 access provides instant information. Work can be done anywhere. Scalability is built in. AB Financial Group offers a wide range of cloud-based accounting tools to meet business requirements in 2022.
HR Tracking – Simplify the human resource task of tracking employee time. Readily meet IRS wage taxation requirements with a time tracking tool. Use a time tracking software that suits your HR department needs. Salaries, time-off requests, vacation management, various leaves including sick days, parental, family, personal, long-term and compensatory absences are tracked with these tools. Boost HR management efficiency in the new year.
Expense tracking – Eliminate the need for receipt collection and expense worksheets for 2022 tax filings with an expense tracking application. Expenditures are converted to digital data. Receipts can be photographed and loaded to the database and pinned to the expense transaction. The real-time feedback provided by the system serves as a prevention against employee overspending. As it syncs directly to the accounting function, it also facilitates management of expenses.
Analytics Processes – Creating efficiency with company data collection is only as good as its use by management. Monthly and quarterly check-ups are good practice. Not an exhaustive reporting process, it can be a quick look at the 30 or 90 day performance. Much can be learned from a brief review of the numbers. Create the habit of scheduling this effort before the 25th of each month. Check-in with the analytics to answer guiding indicators. These may include:
- Current tax position
- Profit/loss ratio
- Historical comparative of performance
- Viability of targets
- Issues to address
- Course corrections required
- Resources needed
- New priorities
- Order of adjustments needed
An upgrade of these tools will create greater profitability and revenue protection in 2022. Let AB Financial Group assist with the retooling process.
Strategy 4 – Pay to save
Addressing tax liability early may decrease cost. Agility with income and expense payments can benefit a tax position. Consider this:
Defer income – Cash accounting, used by businesses for financial statements and tax filings, and advance payments received for services or products to be delivered later, offer a potential tax benefit. Payment terms with customers, the accounts receivable calendar, and deliverable deadlines can be deferred to the next year. This strategy for tax planning may provide a lower tax cost if the tax bracket of the following year is estimated to be lower. This serves to reduce both current year, and, potentially, the next year taxes
Accelerate income – A similar option potentially applies to accelerating income, with the difference that there is likely a higher tax bracket the following year. Accounting for the income within the current year of taxation saves the increased cost in the year ahead.
Defer or accelerate expenses – Expense costs can also be deferred or accelerated such that they can be reported in the optimal tax year. Accelerate expenses if in a higher tax bracket in the current year, or if expecting an increased rate in the next. Defer expenses if income is lower this year and a lower tax rate is expected in the next. The tax bill can be lowered using this strategy between 2021 and 2022.
Strategy 5 – Monitor Legislative changes
The legislative climate is such that law changes may yet impact both 2021 and 2022 taxation. Build Back Better continues to be a possibility according to political observers, and could affect a company bottom line. AB Financial Group is monitoring the legislative climate and the projected impact the legislation may have on business operations, accounting and taxation. Areas of impact may involve small business tax reductions, a federally funded leave plan and multiple small business initiatives. Details here:
- Taxation Fairness – providing tax relief to small businesses while eliminating loopholes favored by larger entities
- Federally funded leave plan – implementing wage replacement by the government to include paid parental, family, personal illness and bereavement leave.
- Increase small businesses – initiating access to capital, technology, competitive federal bidding, credit, development and various incentives, including expansion of the child care tax credit.
These initiatives will impact income, accounting, liability and tax brackets and tax filing procedures for many businesses. AB Financial Group is ready to partner with businesses for all tax position changes and strategies for 2022. We are ready to take care of you. Contact AB Financial Group today at 970-444-5586.