2024's Coming: Get Ready for 2023 Taxes

There’s still time for you to take actions that will have positive impact on this year’s income taxes.

It’s November, and you know what that means. It will be January before you know it, since the holiday months always seem to fly by. That first month of the year signals the beginning of income tax season with the delivery of 1099s and W-2s and other tax documents. With the exception of IRA contributions, it will be too late to do anything that can affect your 2923 tax obligation.

So now’s the time to take a serious look at your income and expenses from this year – up to now, at least -- and estimate what the rest of November and December will look like. You don’t have to break it down to the penny, but you should look at pay stubs and expense receipts and your bank accounts to get a good estimation of the money that came in and went out.

If you’re using personal finance or accounting software, this will be easy. If you’re not, think about automating your money management in 2024 by signing up for services like Truly Small Accounting, FreshBooks, QuickBooks, or the free Mint. Here are some things you can consider once you’ve summarized your income and expenses.

Consider Major Purchases

Depreciation. Ugh. If you’ve ever had to depreciate expensive equipment or other property for your company, you know how complicated the required calculations are. If your qualified acquisition (purchased for use in the active conduct of your trade or business) costs less than $1,080,000 (2022 tax year number), you can claim what’s called a Section 179 deduction on the IRS Form 4562.

QuickBooks tip
A partial view of the IRS Form 4562

The IRS site has a page explaining this form and the deduction, but we recommend you contact us if you’re going to try to claim it. There are additional requirements, and while Section 179 is easier to calculate than depreciation, it can still be a bear to understand its boundaries and fill out the form correctly.

Delay Some Income

This will be easier to do if you’re a sole proprietor or freelancer than a W-2 employee, since you have some control over the invoices you send and revenue you take in. Since you probably have a good sense by now of how your income and expenses will balance out for this year, consider putting the brakes on some billings if your sales are up but your expenses aren’t. If you schedule some of your November and December payments for January 2024 instead, you can start planning very early to offset that extra money.

If you’re a W-2 employee who has a side gig or is anticipating a bonus by the end of 2023, you might follow the same advice, especially if you’re anticipating a refund from your full-time job.

Increase Contributions to Your Retirement Accounts

If you’re already maxing out your 401(k) or IRA contributions, this doesn’t apply to you, of course. But if you’re not, now would be a good time to kick up the amount or percentage you’re putting in. Don’t have an IRA yet? Think about starting one if you have extra cash and anticipate having to pay into your 2023 income taxes.

Take Stock of Your Stock

If some or all of your income comes from product sales, take a good look at your inventory numbers. What’s been selling well this year? Can you purchase more of those items so you have more expenses to claim? If you’re a builder rather than a reseller, how’s your supply of inventory parts? Should you buy more?

Oh the other hand, what should you do about items that are not selling? You may be able to write these off on your taxes, and will have to dispose of them in an acceptable manner. This can be tricky. Let us help you do this the right way.

Find More Deductions

QuickBooks tip

The IRS Schedule C spells out all of the expenses that can be claimed by businesses.

If you started a new business or a side gig in 2023, you might be surprised at how many expenses you can claim as deductions on your 1040 to offset your income. Now is the time to start thinking about your expenses if you haven’t already. You may want to purchase something your business needs before the year closes.

Also, take a look at how you’ve organized receipts and other tax-related documentation and improve your system if needed. These don’t have to be filed with your taxes, but they will be required if you get audited. You don’t want to be scrambling for paper at the last minute, when you’re actually preparing your taxes.

There’s some gray area when it comes to claiming business expenses on a Schedule C. Make sure that what you’re claiming is ordinary and necessary for you trade or profession, which is part of the IRS’ definition.

Start Now to Save Money

We strongly encourage you to start thinking about your 2023 taxes now. Congress can still make changes to the tax code up until December 31, but there’s a lot you can do with what we know now. It’s entirely possible that you can lower your tax obligation by taking some actions now. If you want our help with this early planning, just contact us. As always, we’ll be happy to take on your tax preparation itself when the time comes.