Many occurrences like this year’s pandemic and the election could affect your taxes, investments, and retirements. Now, more than ever, your money and your business must be the highest priority as you navigate the last quarter of this year. Along with these factors and a recession, the country is currently facing a lot of uncertainty. With that said, there are several things your business can do to end the tax year with money in your pocket but remember if you don’t plan ahead and have a tax strategy then once December 31st comes and goes so does the opportunity to make changes that can better your bottom line!
If the election results remain the same as they are today then you’ll want to consider minimizing taxes on your investments. If you are a high-income, you will want to defer losses and accelerate gains. No matter your income, you will want to make sure that your assets providing highly taxed ordinary income are safe in your tax-deferred retirement accounts. On the other hand, stocks that generate lower-taxed capital gains and dividends can be kept in ordinary brokerage accounts.
If your business wants to give to charities, the $2.2 trillion CARES Act passed in March, awarding $1,200 stimulus checks, Paycheck Protection Program forgivable loans for small businesses, and $600 per week federal unemployment benefits offer temporary tax incentives for your donation. If you took an early penalty-free distribution of up to $100,000 from your 401(k) or IRA, it still isn’t tax-free, though you can pay the taxes owed divided in installments over three years. Or you can put the amount back into a retirement account within that three-year limit and claim a refund for any taxes you have paid.
Defer Income until Next Year
If you expect your taxable income to be higher this year than next or think you might be taxed at a higher rate this year, you might want to defer the income until next year. This is where your relationship with your tax preparer, bookkeeper, accountant and Certified Public Account (CPA) really shows it value. You should know, each quarter, of each year where your business stands and the options it has to make the best out of each calendar year!
Maximize the Section 199A QBI Deduction
Stay below taxable income limits and maximize your deduction by deferring income into next year if you qualify for a 20 percent deduction of qualified business income (QBI). It may depend on the following:
- Whether you operate a service-type trade or business
- How much of the W-2 wages were paid by your business
- How much of the qualified property was held by your business
Use Bonus Depreciation
You might be able to deduct the cost of qualified property and acquire the property as an asset acquisition instead of a stock acquisition.
Businesses buying equipment may deduct it as an expense, like computer software and qualified real property. Even business property improvements made to roofs, heating, ventilation, air-conditioning, fire protection or alarm systems, and security systems may be eligible for an election to expense certain depreciable business assets.
Buying New Business Vehicles Weighing More Than 6,000 Pounds
Buying a vehicle like a car, van, or truck for business purposes that is over the statutory depreciation limit may qualify for the full equipment expensing amount.
Accelerate Bad Debts
Accounts receivables that are partly or completely worthless would be best written off, so you qualify for a deduction.
Accelerate Next Year’s Employee Bonuses
As an employer, your liability for your employee’s bonuses typically accrues and is deductible for the current year. You can accelerate the deduction into the present year even as your employee reports it the next year if they are cash method taxpayers.
Accelerate Tax Payments
If you pay payroll and other taxes on a quarterly system, you can accelerate this year’s fourth quarter payroll and taxes at the end of this year instead of January of the next.
Tax rates are eventually going to need to increase to pay for stimulus spending and national debt. Retirement savings could do well in Roth 401(k)s and Roth IRAs. When you retire, the withdrawals are tax-free.
If you are one of those 5.2 million small businesses that received a part of the $525 billion in Payroll Protection Program loans, you will want to know how you can get those loans forgiven. You will also want to know how to account for your tax expenses covered by forgiven loans. The Small Business Administration released a streamlined forgiveness application form for those whose loan was for less than $50,000.
Business taxes will likely rise to deal with the deficit this coming year (both on the national level and in the states). There is no better time than now to turn to our tax professionals at Corporate Capital in Las Vegas, NV, to help you navigate your taxes for the rest of this year and answer your concerns. We welcome you to call 855-371-0070 today!