You may have read the title of this post and thought, “Year end? We just started a new year.” Often the start of a new year means it’s time for many business owners to start thinking about their year end. Year End Tax Planning for Small Business Owners: Part of our small business tax services includes helping you prepare for your year end so it doesn’t feel so overwhelming.
While many businesses do have a December year end, these tips apply regardless of your year end date. Here are just a few things we typically do while preparing for a year end and tax planning for small business owners.
Determine if Any New Credits or Deductions Apply to Your Business.
The only constant when it comes to tax laws is they’re constantly changing. In an effort to ease the economic distress the Coronavirus brought, the government introduced new legislation with new tax credits and deductions.
Enter the CARES Act. Highlights of small business assistance, in the form of new tax credits and deductions, under the CARES Act include:
- Increased ability to utilize losses (more on this below),
- Increased interest expense deductions,
- New employee retention tax credit, and
- Accelerated refundable alternative minimum tax credit.
Part of our small business tax services involve keeping you informed of any new credits or deductions you may be eligible for.
Maximize Your Deductions – Year End Tax Planning
The TCJA came into effect in 2018 and brought with it bonus depreciation for first-year qualifying assets. This means that assets placed in service between September 27, 2017 and January 1, 2023 can be expensed right away.
Qualifying property includes:
- Improvement to building interiors,
- Building enlargement,
- Elevator or escalator,
- Internal structural framework,
- Fire protection systems,
- Alarm and security systems.
If your fiscal year end hasn’t happened yet and you’ve been thinking about investing in any of the above assets, it’s not too late to take advantage of the 100% depreciation rate.
Create a Plan for Paying Taxes.
Hopefully, you’ve been making estimated tax payments throughout the year to avoid the IRS charging you interest and penalties. If not, you can still make a plan to pay your taxes whether it’s year end time or not. It’s always a good idea to have your accountant calculate estimated taxes to ease the burden of paying taxes.
Estimated taxes allow you to pay your taxes quarterly rather than in one lump sum at year end. Small business owners are required to pay estimated taxes if their total tax owing is $1,000 or more, but may choose to do so if they’re expecting to pay at least $500 in taxes.
Benefit from 2020’s Losses.
Under the CARES Act, small businesses can carry back losses from 2018, 2019, 2020 for five years. This means, if you had a loss in 2020 and your business was taxable five years ago, you can apply that loss to your taxable income from five years ago and receive a refund.