There is so much to do and so little time. We get it. But before finalizing the books and heading home for some eggnog, review these 7 items all small business owners should make a note of before year-end.

1. Review IRS Elections (Especially if You Had a Net Operating Loss)

If you had a net operating loss (NOL) this year, double-check your IRS elections to ensure you made the correct ones. This is one of the biggest issues our CPAs see when they help small business owners file their taxes.

In 2021 there was a carryback allowed for NOLs, however, most taxpayers no longer have the option to carryback a net operating loss.

All these decisions affect how much money your business may owe in taxes. Speak with a CPA or financial professional about which elections may be right for you. 

2. Double-Check Major Election Dates

How you structure your small business can make all the difference in the world when it comes to taxes. A tax professional can help you decide which entity type is the best for your business and help you apply before the deadline.

For example, let’s say you found out you could save more in taxes by structuring your business as an S corporation instead of an LLC. If you’re a new business, you have two months and 15 days from the day you file your articles of formation to file your S-corp elections. So, if you filed your articles of formation on March 1, you have until May 16 to file your S-corp election for it to take effect that same tax year.

3. Review Charitable Deductions

The CARES Act brought about major tax incentives to people who donated to charity in 2020 that allowed some carryover, so it would be prudent to confer with your tax advisor on whether or not you have any charitable carryover remaining.

4. Review Depreciation

New depreciation rules have come into effect in recent years due to the Tax Cuts and Jobs Act (TCJA). These changes allow you to write off most depreciable assets “in the year they’re placed into service,” according to the IRS.

Common items you can write off for depreciation include computers, equipment, machinery, cell phones, buildings, office furniture, and vehicles, as well as intangible items like copyrights.

Make sure you keep a list of everything that counts as a depreciable expense. Doing so will help you lower your business’s taxable income.

5. Check Eligibility for SEP IRA

According to the IRS, an employee can participate in a SEP IRA if they:

• Are at least 21
• Have worked for the employer in at least 3 of the last 5 years
• Received at least $650 in compensation for 2021 and for 2022 from the employer during the year ($600 for 2019 and for 2020)

Business owners can choose to be less restrictive than this and allow other employees to participate in an SEP, but you can’t be more restrictive than these IRS rules allow.

Review your SEP IRA eligibility requirements to ensure employees can participate in the program if you want them to.

6. Back to Business As Usual

The COVID-19 pandemic caused a lot of tax deadline delays. There were also several federal relief programs that came about. What changes will we see for 2022?

• The 2022 tax season looks to be back to its usual, pre-pandemic self, with no major changes on the horizon.
• End of deferments: Businesses that opted to defer unemployment and employer taxes from their payroll will need to pay those taxes for the 2022 tax season.

7. Review New Due Dates & Filing Methods for 1099s

Starting in 2020, any freelancers or contract workers who earned more than $600 from their company will receive Form 1099-NEC instead of 1099-MISC. NEC stands for “non-employment compensation,”—and it’s only used for reporting independent contractor income.

1099-NEC forms are due on January 31. If this day falls on a weekend, they’re due the following business day.

How We Help

At Cypress Wealth Services, helping our clients achieve their financial goals is our first priority. As a full-service firm handling everything from A to Z, we understand the importance of taking a holistic review of your financial needs and goals. To learn more about how we can help you prepare for year-end, call us at 866.888.6563 or contact one of our offices today.

About Cypress Wealth Services

Cypress Wealth Services is an independent RIA firm providing financial planning and investment management to high-net-worth individuals, families, business owners, and institutions. Cypress Wealth Services comprises professionals with diverse backgrounds and extensive experience and qualifications. Cypress Wealth Services serves a broad range of client needs using their experience and expertise to act as a foundation for their client service process. The firm uses The Second Growth, which focuses on efficiently protecting, growing, and transferring the wealth and legacy a person has already built to their loved ones. With financial advisors in Palm Desert, CA, Tustin, CA, Athens, GA, and Anchorage, AK, the firm serves clients across the country with Wealth Management Services, Fiduciary Services, 401(k) Design, and Management, Investment Reporting Services, Financial and Retirement Planning, and more. For more information, visit www.CypressWS.com or call 760.834.7250.