2020 is wrapping up quickly, and if you want to get some good news from the IRS come next April 15th, the time to prepare and strategize is now.
Since time is of the essence, I encourage you to contact my office to schedule a consultation right away, but here are 7 tax tips to implement before the end of 2020:
1. Use the IRS Safe Harbor to prepay 2021 expenses.
The IRS safe harbor entitles cash-basis taxpayers to prepay expenses for up to 12 months, while still taking advantage of those deductions right now. So, if you have rent, lease payments, vehicle expenses, payments on your office, equipment, and even insurance, this may save you a bundle.
2. Hit pause on sending invoices (not my favorite, but it is worth mentioning).
If you need to drop your taxable income for 2020, a great method is simply to delay collecting payments from clients, customers, or outstanding accounts. If you don’t receive those payments until after January 1, 2021, then the income won’t go on this year’s books!
3. Purchase needed business equipment.
Do you foresee yourself needing a new copier, computers, business vehicles, or other office furniture and equipment in 2021? Thanks to Section 179 of the IRS code, depreciation rules are now in your favor if you buy in 2020. Some equipment will qualify for the 100% bonus depreciation, so you get a deduction on the full amount paid for the asset.
4. Put it on your credit card.
Schedule C filers, sole proprietors or single member LLCS can make business purchases on their personal credit card prior to December 31st so the business expense can be deducted in 2020 even though the credit card bill may not be due or paid in January of the next year. BE CAREFUL TO DO THIS CORRECTLY if you operate a corporation AND you use a personal credit card to pay for business expenses, you can make charges now BUT you must be reimbursed by the corp prior to December 31st via an Accountable Plan. Read my article on Accountable Plans for a better understanding on this.
5. Don’t be shy when it comes to taking deduction.
If your business’ income fell below the amount of your deductions, you are looking at a net operating loss for the year. You can carry those losses forward and offset up to 80% of your taxable income in future years until the losses are all used up. What does that mean? Take as many deductions as you can, because they may be useful later.
6. Benefit from the CARES Act.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act loosens the reigns on Net Operating Loss rules in 2018, 2019, and 2020, allowing you to carry back losses for refunds going back five years and up to 100% for those five years (instead of no carrybacks and only allowing you to apply your net operating losses to future years capped at 80% of your income).
7. Qualified Improvement Property (QIP).
The CARES Act also amended glitches around qualified improvement properties (QIP), which are fixes and improvements to the interior to non-residential properties like stores, offices, etc. If you utilized QIP rules for your 2018 or 2019 tax filing, you can amend the depreciation span from 39 years to 15 years, possibly saving you money in the short term.
These are just some last-minute tips and strategies, and if you think you need to implement more tax saving strategies before the year ends, click on this link to schedule a strategy call ASAP as most strategies have to be implemented before the year ends!