Business Tax Planning

Tax Planning for Businesses

Tax Moves

Equipment Purchases – You can claim tax benefits for equipment placed in service for your business anytime in 2020, even as late as December 31, 2020.

PPP Loan Forgiveness – Under current law, if your PPP loan is forgiven it is not considered taxable. However, the payroll costs or other qualified expenses which are paid by the PPP loan are not deductible. The year in which the PPP loan is forgiven is the taxable year in which the payroll or other qualified expenses must be reduced for tax purposes.

Company Car – If you acquire a new or used car for business in 2020 the maximum first-year deduction for 100% business use is $18,000; in 2017 the deduction was only $3,160.

New Business – If you start a new business in 2020 you can take advantage of a special write-off of up to $5,000 of qualified start-up expenses paid in 2020. This includes pre-opening costs. You must begin offering goods or services in 2020 to take this deduction.

Charitable Donation by C-Corporation – The CARES Act increased the threshold to 25% of taxable income for donations made in 2020 from the prior 10%. The CARES Act also raised the deduction limit on 2020 charitable donations of food inventory by a C-corporation from 15% of taxable income to 25%.

Retirement Plans – Qualified retirement plans can be a powerful way to defer business income and lower current tax liabilities. Business owners who already have these plans should fully fund these contributions for 2020. Business owners who do not have a retirement plan should consider one.

Maximizing Sec-199A Deduction (QBI) – A new deduction equal to 20% of qualified business income from a partnership, S-corporation, and sole proprietorships is available again for 2020. The key to planning for this deduction is managing taxable income from these entities.

Splitting Business Income With Family Members – A business owner can split business income by gifting family members an interest in the business.

Children Can Work For The Family Business – Placing a child on the business payroll enables the child to make deductible IRA contributions. Putting children on the payroll may also help avoid the kiddie tax.

Potential Individual Tax Rates To Increase – If you expect to be in a higher tax bracket in 2021, accelerate income into 2020 if possible and postpone expenses until 2021.