Tax tips for 2020
A typical question by most business leaders come tax season is, “can I do anything to save on this year’s taxes?”
The answer? Maybe.
There is always a chance to reduce your tax liability, if for no other reason but that tax law is constantly changing.
If you get a resounding “no” from your tax preparer, you may want to get a second opinion. That’s not to your tax advisor is overlooking anything but what you don’t know could hurt you. A second opinion by a financial expert who understands both tax law, financial planning and business strategy could uncover deductions and strategies otherwise unknown to you.
Understand tax guidelines for your business
Before we get into different tax preparation strategies, it’s important to understand how businesses are taxed in the United States.
Most expenses incurred by a business are deductible, while most income is taxable (with some exceptions). Our laws determine when and to what extent a business can claim certain deductions or report income. There are four primary kinds of taxes imposed on businesses:
- income taxes
- employment taxes
- sales taxes
- excise taxes
Depending on your business type you may also be subject to other types of taxes such as property, self-employment, dividend or gross receipts taxes.
When reviewing your tax liability for 2019 (and planning your future budget) be sure to account for all areas you may owe.
2019 tax savings (still on the table in 2020)
Needless to say, tax strategies and savings are often unique to a specific business or only available during the calendar year. But there are some unique tax situations that businesses can still utilize for 2019 including:
- Mitigating penalties: if you failed to adequately withhold or make quarterly tax payments, you could be subject to penalties. It is not to late to avoid these potential penalties by making payments now.
- Converting corporate entity: business owners should frequently review their choice of entity. If you realize it’s time to switch, you have until March 15 (anything after that effects the following tax year).
- Taking advantage of valuation discounts. Are you leveraging your gift tax exclusions and exemptions? When gifting ownership interests, which may be eligible for valuation discounts. So, for example, if the combined discount is 25 percent in 2020 you can gift an ownership interest equal to as much as $20,000 tax-free because the discounted value doesn’t exceed the $15,000 annual exclusion.
- Reducing personal tax liability: while we are talking about business taxes primarily, don’t overlook ways to reduce your personal tax burden. For example, it’s not too late to contribute an IRA or HAS account.
It pays to plan ahead
While there is still time to save on 2020 taxes, the real way to reduce your overall tax burden is to plan ahead.
If you're hoping to lower your taxes in 2021, now is a good time to start. While you are working on your annual budget, review whether you are maximizing deductions and timing income/expenses to reap the most benefit.
For example, if your business uses the cash method of accounting, you could defer billing for products or services at year end. If you use the accrual method, you can delay shipping products or delivering services.
Working closely with your CFO and financial team you can project your income and expenses to get the most tax advantage, as well identify other tax strategies for your particular situation. He/she also can keep you apprised of any new tax law developments that occur in 2020 that might affect you.
Related reading: Secret to Business Success: Outsourced CFOs
Though you may not be ready to focus on taxes just yet, know that by minimizing the amount of taxes you pay means that you get to keep more of the money you earn.
And that's reason enough to get started.