2020 Year-End Tax Planning For Businesses
Piggybacking on our last blog post regarding year end tax considerations for indivudals, please find a list of our thoughts for businesses as 2020 comes to a close.
• PPP loans will have an impact to your bottom line. Some portion or all will probably be recognized as taxable income this year. See our prior blog regarding an update on PPP Loan Forgiveness, and review your estimated tax payments.
• Net Operating Losses (NOL) have a new set of rules. You can now carry them back 5 years, and are no longer limited to 80% of taxable income.
• Depreciation for Qualified Improvement Property (QIP) - QIP is generally defined as an improvement to the interior portion of a commercial building, but not an enlargement. These improvements are now assigned a class life of 15 years and not 39 years, thus making them eligible for 100% bonus depreciation under 168k. And this applies to such improvements made after 2017. Please let us know if you believe any expenditures would qualify and we will discuss your options.
• A long time strategy as we come to the end of the year, would be to accelerate deductions into the current year, and deferring income into the new year. This is still true if you are having a good year financially. However, if 2020 has not been as kind to you, the reverse could be true, accelerate income into 2020 and postpone expenses into the new year.
• 168k is the new standard for depreciation for the time being. It allows 100% depreciation on new and used property for property purchased with a class life of 20 years or less. Remember many/most states do not follow this provision therefore state depreciation will be spread out over a longer period.
• Auto depreciation has increased.
• S Corporation shareholders should look at their stock and debt basis, especially if it is a loss year. This is a commonly forgotten area of a business's tax return, but very important. Reach out to us for assistance.
• Meals are still deductible at 50%, but entertainment expenses are generally no longer deductible.
Please let us know if you would like to discuss your business's 2020 results and review a tax projection for you.
Sturgill & Associates | 11/25/2020