5 Business Tax Deductions to Consider
It’s year-end tax planning time at LSWG. If you haven’t already, you might want to take a look at opportunities that you need to take advantage of before year-end.
What can business owners do to reduce their taxes? Some need to make themselves aware of the various breaks available. Some are the result of the 2017 Tax Cuts and Jobs Act (TCJA) and some were created by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). In addition, although the chance of any further tax or COVID-19 legislation seems slim, further changes may come.
Consider the following five tips:
1. Accelerated Alternative Minimum Tax (AMT) Refunds. The TCJA repealed the corporate AMT. It also allowed corporations to claim any unused AMT credits in tax years 2018–2021. The CARES Act accelerated this timeline. Accordingly, companies that file by December 31, 2020, can claim all remaining tax credits for 2018 and 2019.
2. Disaster Losses. The entire country was declared a disaster area because of the COVID-19 pandemic. This makes businesses eligible to fast track a refund for certain COVID-related losses. The losses must have occurred in 2020. The claim for a refund may be available if the business files a 2019 amended return.
3. Payroll Tax Deduction. Companies that elected to defer paying their 6.2% share of payroll taxes for 2020 are allowed to defer repaying this amount according to the following schedule: Half of the deferred amount must be repaid by December 31, 2021, and the remaining half must be paid by December 31, 2022. This can help companies with their cash flow, however, the tax cannot be deducted if it is not paid. Consequently, with some exceptions, companies that defer paying payroll taxes in 2020 cannot take the deduction in that year.
4. Net Operating Loss (NOL) Carrybacks. The CARES Act allows businesses to use current losses against past income for immediate refunds. As a result, NOLs arising in tax years beginning in 2018, 2019 and 2020 can be carried back five years for refunds against prior taxes. These deductions come with some restrictions, however, including when 2020 taxes are filed.
5. Bonus Depreciation. The CARES Act expanded the bonus depreciation deduction to apply to improvements to qualified improvement property dating from January 1, 2018.
Want to learn more about these deductions and other tax strategies that can help ensure you pay only what is required of you? LSWG’s 2020-2021 Tax Planning Guide can help. Click here for a copy. Once you’ve had an opportunity to look it over, give us a call if you’d like to discuss tax planning strategies before the end of the year.