The end of the year is a time when many Colorado businesses set aside time to review accomplishments, find areas of improvement, and focus on the coming year. Identifying where improvements can be made, efficiencies realized, and expenses reduced are important, especially during an economic downturn. An essential component is a careful review of financial performance highlighted in reporting and accounting details. However, before the page is turned on 2022, year-end considerations must be made. From new benefit programs, changing tax incentives, and updated pricing now is the time to make essential considerations. To help clients, prospects, and others, Whipplewood CPAs have provided a summary of the key details below.
Year-End Business Considerations
- Managing Inflation – Denver companies are facing inflation levels not seen for more than 40 years. Most are experiencing reduced profits driven by higher labor, material, rent, and other fixed costs. The year-end is an excellent time to evaluate pricing and make upward adjustments as needed. Since this trend is impacting businesses across the board it is likely there will be less resistance from customers.
- Colorado FAMLI Requirement – Denver businesses must begin withholding premiums for the new Colorado FAMLI leave plan on January 1. Businesses with at least ten employees need to pay the employer premium. In addition, employers are required to notify employees about the program by January 1, 2023. The premiums are each 0.45% of gross wages with certain deductions allowed. Although both pay the premiums for all of 2023, coverage under the plan doesn’t begin until 2024.
- Colorado Secure Savings Program – There is a new requirement that businesses with at least five employees offer an employer-sponsored retirement plan. There are multiple options for meeting to consider and depending on the circumstances, the compliance costs can vary. If the business does not adopt its own plan, it is required to adopt the plan offered by the State of Colorado. That plan offers much less flexibility than the company’s own plan and that lack of flexibility can be costly.
Year-End Tax Considerations
- Bonus Depreciation – This begins phasing out in 2023. If there are plans to purchase software or equipment, it might make sense to purchase before year end. For example, if a business purchases a piece of equipment for $20,000 on December 31, that business can usually take bonus depreciation of $20,000 against 2022 taxable income. However, if they delay the purchase until January 2, they will receive a $16,571 – $17,000 deduction in 2023 with the remainder of the depreciation spread over future years. We can work with you to maximize the value of the tax deductions for the purchases of buildings and equipment.
- Elections for State Taxes – Most states (including Colorado) now allow a partnership or S corporation to elect to pay the state tax on behalf of its owners. The advantage is that the taxes imposed at the business level are not subject to the $10,000 federal cap on deducting tax payments. There are often drawbacks to making the election that might make it more advantageous to forego the election.
- Filing Sales and Income Taxes in Multiple States – There have been rapid changes in the requirements to file and pay taxes in other states. If you have sales, employees, or inventory (such as in an Amazon warehouse) outside of Colorado, there may be a tax payment required. Even having outside independent contractors can sometimes create filing requirements. If you are required to file a return and don’t, the statute of limitations never ends on those taxes. Instead, penalties and interest continually accrue until payment is made.
- Colorado Delivery Fee in Sales Tax – Colorado now has a delivery fee that is included in sales tax filings. For each delivery of an item subject to sales tax within Colorado by motor vehicle, the seller is required to collect $0.27 from the customer and remit it with the sales tax. If your business delivers taxable merchandise by motor vehicle (including by mail or other common carriers), you should be collecting this fee and remitting it.
- Potential Gain Exclusion on the Sale of Your Business – There has been a great deal of activity in the last couple of years with business restructuring to qualify for the “1202 Gain Exclusion.” If the business is held in a C corporation for at least five years, then the owner can sell the stock and exclude up to greater of ten times the initial investment or $10 million in gain. If you are working toward selling your business for a substantial gain at least five years down the road, we may be able to help you restructure your business so that you would qualify for this tax benefit.
- Forms W-2 and 1099 – W-2s and 1099s must be issued and filed with the IRS by January 31. Some fringe benefits including personal use of company vehicles must be included in wages. It is important to review the W-2 information in early December to avoid costly payroll re-runs before sending out W-2s. See Appendix III for a summary of year-end payroll issues to address and share the information with your payroll person. You should get a W-9 form from each 1099 vendor and maintain a file of them.
Don’t celebrate the new year too soon. There are still important opportunities and considerations for Denver businesses to make before the new year. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Whipplewood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.