This year has been an interesting and challenging year. Due to Covid-19 there have been economic stimulus payments, Payroll Protection Loans, and new regulations by the CARES Act, the Disaster Act, and SECURE Act. Many of these rule changes have affected taxpayers by extending previous expiring provisions, changing retirement rules, charitable contribution deductions, and much more.
We will highlight some year-end tax planning that may help you to lower your tax bill for 2020.
• NOL-If you expect a business loss in 2020, you will be able to carry back 100% of the loss to the prior 5 years. If you carry an NOL into 2020, you can claim a deduction for 100% of your 2020 taxable income.
• MD Tax Benefit -MD has implemented a workaround for the $10,000 itemized deduction state tax limitation. You may elect to be taxed at the entity level for an S Corp, Partnership or LLC. Taxes will need to be paid before year-end. Please contact us for further information.
• Establish a Retirement Plan -If you do not already have a retirement plan set up for your business this is a good time to consider your options. The SECURE Act offers an additional incentive for establishing a retirement plan in 2020 in the form of a credit up to $5,000. Please let us know if you would like to discuss the many options available to small businesses.
• Bonus Depreciation -100% first-year bonus depreciation is still available for qualified new and used property that is acquired and placed in service in 2020. Consider making any additional acquisitions between now and the end of the year.
• Heavy SUVs, Pickups or Van Depreciation -100% bonus depreciation is allowed on qualified vehicles used over 50% in your business. It is available to SUVs, pickups or vans that have a Gross Vehicle Weight over 6,000 pounds.
• First-Year Depreciation of Cars, Light Trucks & Light Vans -There are still limits on new and used passenger vehicles acquired and placed in service in 2020, the limits are $18,100 for Year 1, $16,100 for Year 2, $9,700 for Year 3 and $5,760 for Year 4 and after.
• Section 179 Deduction -For qualifying property placed in service in 2020, the maximum deduction is $1.04 million. The phase-out threshold in $2.59 million.
• PPP Forgiveness -As of this letter, the IRS wants to treat the expenses paid by the loan proceeds as non-deductible, therefore creating taxable income on the forgivable portion of your loan. This is counter to the intent of the forgivable loan but only Congress can stop this. We are hopeful that Congress will act within the next month or two ... Stay tuned!! Also, to certify the forgivable portion of your loan with your bank, you have 10 months from the end of your selected covered period (8 weeks or 24 weeks after loan proceeds were received). For most companies, this will be around April or August 2021.