Fall is definitely here and now is a great time to start thinking about your year-end business tax planning. There are a variety of things you may want to consider, or at least look into, before the end of the year, so you can make adjustments now to reduce the taxes you have to pay in 2020. All of these suggestions depend greatly on your specific situation, so we recommend reaching out to us with questions or for advice.
Should you change your business entity?
The Tax Cuts & Jobs Act (TCJA) made a lot of changes to the tax code, many of which impact small businesses. Quite a few can now deduct 20% of qualified business income, particularly those with pass-through entities, (i.e. sole proprietorships, partnerships, LLCs and S corporations). There are, of course, exceptions and caveats, particularly for those in professional services. In some cases, it may make sense to change from a pass-through to a C corporation, which now pays income tax rates of 21%, down from 35%.
Do you need to invest in some business equipment?
If you purchase equipment – new or used – and place it into service before December 31, 2019, you may be able to receive a tax deduction of up to $1 million, nearly twice as much as 2017’s $510k. There are also some situations where business owners can take a 100% bonus depreciation deduction on equipment.
Should you defer some income to next year?
Most business owners see some fluctuation in their income from year to year, and the savvy ones keep an eye on this on a regular basis. If 2019 is looking like a banner year from an income perspective (and if so, good for you!), you may want to defer some of that end-of-year income to 2020. This is particularly true if you expect next year’s income to be down for some reason. This can save you a significant amount of money in taxes but definitely requires some advance planning.
Would stocking up on certain items make sense?
In addition to deferring income, you may want to think about pre-paying for some expenditures you know you will need to make in early 2020. Doing things like stocking up on office supplies, purchasing raw materials or prepaying rent or insurance are potential options here. Or are you doing some business travel or attending a conference in early 2020? Go ahead and pay for your registration, airfare and hotel this year to lower your income. This isn’t something all businesses should do, but in some cases, it can decrease your tax liability quite a bit.
Is it time to write off that debt?
Do you have outstanding accounts receivable that you simply know you are never going to collect? Maybe the customer went out of business, or you’ve done everything you can to collect and still no payments have come in? Depending on the amount, and how long it has been on your books, it may be time to write off these bad debts, thereby reducing your taxable income for 2019. Be reasonably sure you will not receive payment, since you will have to reverse the write-off if you are paid down the road.
Like most business activities, time spent on planning can make a real difference in your outcomes. There are a number of other things to consider as 2019 starts winding down, so call us today to make an appointment so we can review your specific situation and make suggestions for you.