13 Nov Year-End Tax Planning Strategies for Business Owners
That’s a picture of solar panels!? What does that have to do with Tax Planning Strategies, you ask? Well, we’re going to talk about ways small business owners do to lessen the tax implications for this year and/or next!
Cash method of accounting: delaying end-of-year invoices so that income/payment is not received until 2021.
Accrual method of accounting: delivery of goods or services in January 2021.
Purchase New Business Equipment
Depreciation. Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023. After, it will be phased over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.
Deductions or Tax Credits
Qualified Business Income Deduction. Owners of businesses operated through sole proprietorships, partnerships, and S corporations may be eligible for the qualified business income. This deduction is worth up to 20 percent of qualified business income from a qualified trade or business for tax years 2018 through 2025. Your taxable income must be under $163,300 ($326,600 for joint returns) in 2020 to take advantage of the deduction. Qualified business income is confusing, so it is important to call a capable accountant to maximize the deduction.
Small Business Health Care Tax Credit. Small business employers with 25 or fewer full-time employees with average annual wages of $50,000 (indexed for inflation) may qualify for a tax credit to help pay for employees’ health insurance. The credit is 50 percent (35 percent for non-profits).
Business Energy Investment Tax Credits. You can take advantage of energy tax credits for eligible systems placed in service on or before December 31, 2022, but some expire this year 2020. Business energy credits include geothermal electric, large wind, and solar energy systems used to generate electricity, to heat, cool, or to provide hot water for use in a structure, or to provide solar process heat.
Retirement Plans. Self-employed individuals should set up self-employed retirement plans before the end of 2020.
Call today if you need help setting up a retirement plan, figuring out qualified business income, what equipment you can depreciate, and all the other year end tax “things!”