Use these Tips and Strategies to Maximize your Deductions for 2020 and into the Future
1. Create a smart plan for paying taxes
During turbulent times, preparation and planning are the keys to managing the stress on your business and staying financially solvent. The earlier you have a forecast of your business’s tax outlook, the better prepared you will be to prevent cash flow disruptions. This can be achieved by putting money aside or looking for lines of credit to pay the IRS.
2. Leverage retirement savings plans
In addition to personal retirement, small businesses have options for employer-sponsored retirement savings plans, including SIMPLE IRA, SEP IRA, 401(k), and profit-sharing plans. Each has its own benefits but can provide a win-win for both business owners and employees by providing tax-sheltered retirement funds and reduced tax bills.
3. Take advantage of bonus depreciation for equipment
If you buy new or used equipment and place it in service before the end of the year, you could be entitled to a federal tax deduction of up to $1.04 million. In addition, businesses can take a 100% bonus depreciation deduction on certain kinds of equipment bought and placed in service after Sept. 27, 2017 (up from 50%). This, in addition to Cost Segregation strategies, can provide huge tax savings for businesses at a critical time.
4. Understand how PPP loans will be taxed
The CARES Act created the Paycheck Protection Program (PPP), which provided funds to cover employee salaries and other expenses. And while these benefits were critical to many businesses’ survival, they did add many new facets to calculating year-end deductions and plans for years ahead. One such change was how R&D Tax Credits would be calculated when taking into account these PPP funds. Clarity and debate are still being provided in Congress, but we recommend speaking to a tax professional who specializes in this area of the tax code for more information.
5. Make the most of this year’s losses
For many businesses, 2020 was an especially tough year. But, as the adage says, if life gives you lemons, you can save more on your taxes. If you operated at a net loss from 2018-2020 you can apply those losses against income from the past five years for an immediate refund. In addition, increasing your expenses this year could increase the potential refund you are eligible for.
If you have any questions on this or any of the other commercial tax services that National Tax Group provides, please reach out to our tax professionals at (561) 257-3436.