Early in the fourth quarter of 2021 is a good time to begin year-end planning. The sooner you get a jump on things, the more options you’ll have and the less stressed you’ll be.
Line up your benefits package for 2022
While 2022 may seem a long time from now, it’s not too early to make firm decisions for the coming year.
Health coverage. Decide now how you plan to handle health coverage for your staff in 2022. Will you buy group coverage (from a private insurer or through the Small Business Health Options Program [SHOP], assuming you have no more than 50 employees)? Or will you reimburse employees for their individually-obtained health coverage through a QSEHRA or an ICHRA? These options were explained in greater detail in a prior blog.
Retirement plans. If you don’t already have a retirement plan, now’s the time to decide on which type of retirement plan to use for your business in 2022. Technically, you have until the extended due date of your 2022 return to set up and fund a plan. But if you want to use a plan in which employees contribute from their salaries, you need to act now in order to give required notice to them. For example, if you want to have a SIMPLE IRA, act soon so that you can give required notice to employees by November 2. The IRS has a comparison of retirement plans for small businesses.
Other employee benefits. Health coverage and retirement plans aren’t the only benefits you may want to offer to your staff. Consider, for example, helping employees with their dependent care costs by having a dependent care FSA. This is funded with employee pre-tax contributions. Find a list of various employee benefits in IRS Publication 15-B and in a post of mine on Small Business Trends.
Do tax planning
It is extremely difficult to do tax planning now because we’re in the midst of tax uncertainty. What will Congress do about raising taxes? Adding new benefits? Changing the rules for 2022 and beyond? Nonetheless, there are some things that are certain and you can act now.
Inventory. For most businesses, the two main concerns regarding inventory now are handling supply chain challenges and selling items now and through the holiday season. But tax issues should also be addressed. If you have items sitting on your shelf that won’t move—they’re out of fashion or obsolete—act to gain a tax break:
- Take a write-down by offering items for sale (assuming you don’t use LIFO for your inventory). This sale must be held within 30 days of the end of the year.
- Sell items in bulk to a liquidator. You’ll realize income (or a loss) on the sale of the items. In any event, you’ll raise some cash from the sale.
- Donate items to charity. Benefit a cause and, perhaps, gain a tax deduction for the donation. For example, donate to NAEIR, which is an organization that sees your inventory items land in the hands of those who need them most.
Charitable giving. Regardless of tax law changes, giving is never out of style. Some favorable tax rules for charitable giving are set to expire at the end of 2021, but companies still benefit—taxwise and in other ways—from charitable giving. Consider:
- Donating cash
- Donating property or inventory (explained above).
- Giving employees time off to volunteer for charitable organizations
Reminder: If you have a leave-based donation program for your company, be sure to complete before January 1, 2022, your cash donations to a charity providing COVID-19 relief. Doing this makes employees’ donations to the plan tax free; you don’t even have to report the donated leave time on their W-2s. The business gets the charitable contribution deduction (for pass-through entities, owners claim their share of the contribution as a deduction on their personal returns).
Estimated taxes. Review your taxes year-to-date so that you can cover any shortfalls in the final estimated tax payment. For calendar year C corporations, this is December 15, 2021. The final installment of estimated taxes for individuals (i.e., business owners) for 2021 is January 18, 2022.
Start strategic planning for Q1 2022
Making projections for the coming year are essential in planning your actions. Do you expect the economy to improve? Hiring to get easier? Gas prices to decline? These are just some of the questions to consider. Whatever you concluded, be sure to:
Review your business plan. If the pandemic has taught us anything, it’s that we need to be adaptable. Update your plan to reflect new ways for reaching your customers, handling your employees, dealing with supply chain issues, etc.
Revise your budget. Project your expenses for the coming year (or at least for the first quarter) so you can set a budget. Be sure to factor in known increases, such as a higher Social Security wage base.
Schedule annual board meeting. If you are incorporated, state law requires that you hold an annual board meeting. Be sure to schedule this and cover various items. These include compensation to owner-employees and adopting employee benefits plans.
The end of the year is often a frantic time for business owners, torn between managing their businesses and participating in holiday activities with family and friends. Getting a jump on year-end planning early can leave time for owners to do both.