In just a few months, 2020 will come to a close. There is still time, though, for strategic tax planning before the end of the year. The following are the top 10 tax strategies you can take advantage of now.
- Qualified Improvement Property – Review your 2018 and 2019 reinvestments to see if additional depreciation can be taken on QIP. The CARES Act passed earlier this year included a retroactive fix to the Tax Cuts and Jobs Act passed in 2017. Non-structural improvements made to the interior of an existing building are now eligible for 100% bonus deprecation. We recommend either amending your tax returns to take the additional depreciation deductions and request a refund or take the additional depreciation on your 2020 tax return.
- Bonus Depreciation and Section 179 – 100% write off for qualified property extends through December 31, 2022, but steps down from there until it’s at 20% in 2026. Bonus deprecation can be taken for new and used furniture, fixtures and equipment; qualified improvement property; land improvement; and certain automobiles.
Section 179 expensing is a related option. Using this method, you can currently deduct up to $1.04 million with $2.59 million phase-out threshold for 2020. Section 179 is available for furniture, fixtures and equipment; QIP; certain automobiles, roofs; and HVAC, fire protection, alarm and security systems. Note that taking Section 179 cannot create a loss.
- Work Opportunity Tax Credit – Employers can save taxes by hiring individuals from certain targeted groups. The federal WOTC is available through December 31, 2020.
- Empowerment Zone – Businesses located in a federal Empowerment Zone may be eligible for federal tax credits. This provision was retroactively extended for 2018, 2019 and 2020.
- State Tax Credits – Georgia has a number of beneficial tax credits, such as the Rural Hospital Tax Credit and various education-related tax credits.
- Employer Tax Credits – The CARES Act and the Families First Coronavirus Response Act contain various employer tax credits, such as the Employee Retention Credit, and payroll tax credit for Emergency Paid Sick Leave and Expanded Family Medical Leave.
- Charitable Contributions – Take advantage of charitable options while the limit is 100% of AGI. Some options include Donor Advised Funds, donations of appreciated stock and qualified charitable distributions from an IRA.
- 401(k) Plan for Employees – Consider establishing a Safe Harbor 401(k) plan for your business. These allow you to avoid most annual compliance tests and employer contributions are fully vested. Furthermore, you generate tax deductions while offering a valuable benefit to your employees.
- Net Operating Loss – You can recoup taxes with Net Operating Loss carrybacks. The CARES Act allows a 5-year carryback period originating in tax years 2018, 2019 or 2020.
- Purchase a New Vehicle – You can save on taxes by purchasing a large truck before December 31. The 2020 deprecation limits are as follows:
- Autos 6,000 pounds or less: Maximum deprecation of $18, 100 (including bonus depreciation)
- Autos/Trucks/Vans/SUVs greater than 6,000 pounds: 100% bonus deprecation and/or Section 179 up to $25,500
- Trucks over 6,000 pounds and bed length of at least 6 feet: 100% bonus depreciation and/or Section 179 up to $1.04 million.
Note that the vehicle must be used for business purposes more than 50% to qualify for Section 179.
Looking ahead, many of these beneficial tax provisions will be expiring:
- Bonus deprecation is phasing out starting in 2023
- 20% QBI deduction expires at the end of 2025
- Tax rates will revert to pre-TCJA rates in 2026
- The election may result in other changes sooner than later.
Please contact us if you would like more information on these or other tax strategies.
Lindsey M. Pierce, CPA, is a partner with Antares Group, Inc. She can be reached at firstname.lastname@example.org.