5 Year end tax moves for small businesses

The end of the 2020 tax year is fast approaching. As a small business owner amid the COVID19 pandemic, you would likely love to put this year behind you. Before you do, you still have some unfinished business to which you need to attend.

As you start preparing to close out the year and file your business tax returns, you still have a small window of opportunity to make some changes. Some tax laws changed recently, opening the door to tax advantages your business may not have had access to in the past.

To help you take advantage of what’s available for your small business, here are 5 yearend tax moves you might want to make.

1. Prepare Your Record Now

With the holidays ending and the new year beginning, you don’t want to wait until early next year to get your business’ accounting records organized. People who wait until the last minute are more likely than well-organized business owners to miss something important. Missing something important could translate to costing the business money.

Now is a good time to take a look at where your records stand. If things have been a little messy due to the stress you have been encountering, you need to start getting your records organized for the taxman.

2. Set Up Retirement Savings Plans

If you haven’t had the opportunity to research the benefits your business could derive from certain types of retirement savings accounts, this is the year to make it happen. There are at least three types of plans you could implement that could save your business serious money.

Remember, most retirement savings plans permit participants to contribute pretax dollars. That’s also applicable to small business owners. Here are the three options you might want to consider (note the possible savings):

Defined-Benefit Pension Plan
Solo 401(k) – contributions of up to $19K plus a catch up provision of $6K if over 50 years old
SEP IRA – contribute 20% of income to be capped at $56K

3. Home Office Tax Deductions

If you work from home, the business may be entitled to deduct a portion of the household expenses. Allowable tax deductions could include a portion of the rent, mortgage interest, utilities, and maintenance. There are several ways to calculate the proportionate rate, using sq. footage of the office area to the total sq. footage being one of them.

4. First-Year Bonus Depreciation

By way of offering some relief to small business owners for 2019 and going forward, Congress passed the Tax Cuts and Jobs Act (TCJA) in 2019. One of the provisions of the TCJA is to allow small business owners to depreciate 100% of qualifying assets during the current tax year.

If you have capital, you might want to think about making large asset purchases in time to qualify for this new provision. You can wait until the end of the year to make purchases.

5. Start Planning for Next Year

The earlier you start tax planning for next year, the easier it is going to be to operate the business. You’ll be able to start making business decisions with your future tax liability in mind.

Remember, anything you can do today to get your business ready for next year will save you time. If you take the right steps, it could save money as well. If we can help, please contact jillian@jmvfinancialservices.com.