Last Chance Tax Planning By - Kelly J. Bullis
Updated: Feb 13
Finally! We have reached the end of 2020! We made it! For you business owners out there who’ve survived and actually made a profit in 2020, you have one last chance to do some “tax planning” before this year ends.
Do you need a new business vehicle in the next 6 months? Buy it now before the year ends! Some things to consider. First, if you want to expense 100% of the purchase price, it must be a 100% use business vehicle, and it must be over 6,000 pounds in gross vehicle weight. If you are not interested in a full sized SUV or pickup truck, then understand there are still some favorable tax benefits. The first year maximum depreciation for a new or used vehicle under 6,000 lbs is $18,100. In year two, it drops to $16,100, then in year three down to $5,760.
How about other assets (other than vehicles) for your business. Computers, furniture, generators, tractors, trailers, special tools, etc. As long as your business isn’t so big that it might purchase over $1,040,000 in total assets in a single year, you could deduct 100% of the purchase price of new assets.
Do you have some key employees that you want to make sure are happy and won’t jump ship on you? How about paying them a special bonus paycheck before the end of the year?
Time your deductions by paying all your outstanding accounts payable bills before the end of the year. (If you need extra deductions, pay the accounts payable off, if you don’t, then don’t pay accounts payable until January.) You could also prepay normal January expenses like rent, utilities, insurance premiums, etc. before the end of 2020.
Along the same line, if you have high taxable income for 2020, you could offer customers who owe you the option of waiting until January to pay their bill, which normally results in deferring tax on that customer payment until 2021. If your 2020 income is low and you expect 2021 to be higher, you could offer incentives for customers to pay their current invoices before the end of 2020.
Maximize Qualified Business Income (QBI) Deduction. If your Sub-S business has a reasonable profit and you have already paid yourself a reasonable salary for the year, stop paying any further salary to yourself, instead, take out draws. That will leave the taxable income a bit higher, which potentially 20% of that would be a QBI deduction.
So there you have it. Even if you like to wait till the last second to do things like tax planning, there are some things you can do to save taxes in 2020. Now go and do it.
Have you heard? Prov 20:18a says, “Plans are established by counsel…”