2020 Year-End Tax Planning for Businesses
Year-end planning for 2020 takes place against the backdrop of a turbulent year for businesses. The following is a brief overview of many year-end tax saving strategies incorporating the implications of the pandemic, associated loans and how they will affect taxpayers with businesses.
Take Advantage of Refund Opportunities.
Provisions within the Tax Cuts and Jobs Act (TCJA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES) provide opportunities for businesses to increase their cash flow by receiving refunds of prior taxes paid in a variety of ways.
The TCJA repealed the corporate alternative minimum tax and allows corporations to claim their unused AMT credits in tax years beginning in 2018-2021. The CARES Act accelerated this timeline and allows corporations to claim all remaining credits in 2018 or 2019. There are several options for filing the claim for refund. The fastest way is to file a tentative claim for refund on Form 1139, which must be done by December 31, 2020.
Net Operating Losses.
The CARES Act contains a provision enabling businesses to apply current losses against previous income to generate immediate refunds. NOLs generated in 2018, 2019, or 2020 can be carried back up to five years to generate refunds or prior taxes. If you anticipate losses with your 2020 return, start preparing to file early as you cannot claim an NOL carryback until your 2020 return is filed.
Qualified Business Income (QBI) Deduction.
The Qualified Business Income Deduction, also known as the Section 199A deduction, allows eligible business owners to claim a tax deduction worth up to:
- 20% of their qualified business income (QBI), plus
- 20% of qualified real estate investment trust (REIT) dividends, and
- 20% of qualified publicly traded partnership (PTP).
This is one of the few provisions under the New Law that is set to expire after 2025.
“Qualified Business Income” (QBI) is essentially net profits from “any” pass-through trade or business, subject to certain limitations and exclusions:
1. Certain personal service businesses known as “Specified Service Trade or Businesses” and
2. The trade or business of performing services “as an employee.”
A “Specified Service Trade or Business” (SSTB) is any trade or business activity where the principal asset of such trade or business is the reputation or skill of one or more of its employees. Certain industries are also automatically classified as an SSTB due to the nature of the services rendered (i.e. law, accounting, performing arts, consulting, etc).
Qualifying owners with total tax-able income under $163,300 or $326,600 (if filing jointly) may qualify for the full 20% deduction. Owners of SSTB’s may qualify for the full 20% deduction if taxable income does not exceed $160,700 or $321,400 (if filing jointly). Above these limits, the ability to claim the deduction depends on the precise nature of the business, as the deduction phases out for some businesses.
For more strategies, click here.
This is intended to give you just a few ideas to get you thinking about planning for 2020. Copper Leaf Financial develops a customized wealth management (financial) plan designed to integrate every aspect of your financial life. This is "true wealth management" - a holistic approach that goes beyond just investment advice. Our affiliated full service CPA firm, Davis & Hodgdon Associates, enables us to tightly integrate individual and business owner’s wealth management with comprehensive tax advice so that all recommendations can factor in the tax consequences. Call us today at (802) 878-2731 to schedule a strategy session and begin building your road map to financial success.