Now that the Thanksgiving turkey has digested, we must turn our attention to effective year-end tax planning. This year’s uniqueness and uncertainty you experienced in your business also apply to tax planning. With a new President and uncertainty in the Senate, it is unclear what potential tax law changes may arise in 2021. With capital gains rates, individual tax rates, estate exclusions, bonus depreciation, and other business tax benefits at risk, we recommend examining ways to preserve the opportunities available to you today.
There is a great deal of urgency here since these opportunities could be gone as quickly as they appeared!
- PPP Taxability – Did your business take advantage of PPP funding? If so, the uncertainty continues…
- On November 18, the IRS solidified its position that expenses funded by PPP will not be federally deductible and result in tax consequences for businesses nationwide.
- We expect to hear more on this issue and Congress has already released a statement asserting that the position of the IRS goes against congressional intent.
- Do not panic – you have options! – Explore other tax credits available and accelerating expenses in 2020.
Since we know there is potential tax exposure associated with PPP funds, effective planning is critical. Consider these six tax laws that could change in the short term to mitigate your risk and minimize your tax exposure today.
1. COVID Business Loss Treatment – Did you incur business losses in 2018, 2019, or 2020?
- Changes in tax law from the CARES Act allow individuals, estates, and taxable trusts with business losses during 2018, 2019, and 2020 to carry those losses back up to 5 years.
- Consider accelerating expenses in 2020 even if you already show a loss.
- Execute the loss carryback available to generate an immediate cash refund.
2. COVID Disaster Relief Payments – Have you or your key employees incurred expenses shifting to remote work?
- Section 139 Disaster Relief Payments are covered under nonaccountable plans and can be utilized to recognize these expenses in your business.
3. Maximizing Industry Specific Tax Incentives – Are you aware of your industry specific incentives?
- Find more information on Architecture, Construction, Engineering, Manufacturing, Real Estate, and Software specific tax incentives to ensure you are fully benefiting while the benefits are available.
4. Automatic Accounting Changes – Is your business under $26MM in annual revenue?
- There are automatic accounting changes available for small business that can help accelerate expenses and create or increase losses in 2020. If you are profitable in 2020, this strategy may offset profit.
- Take advantage of these elections while they exist and can generate immediate cash through loss carryback treatment.
5. Real Estate Investments – Have you recognized the maximum tax benefit available for your investment?
- Explore cost segregation opportunities for real property currently owned or planned to purchase.
- Potential tax changes to accelerated depreciation options could make cost segregation less beneficial in the future but act now and you will be grandfathered into the current rules.
6. Estate Tax Considerations – Do you know the estate exclusion is at an all- time high, but it is temporary?
- Take advantage of the increased estate tax exclusion before it possibly falls from $11.58 to $3.5MM.
- Implement smart gifting and discount strategies and ensure these strategies are most effective for the increased exclusion available today.
- Basis planning is an often-overlooked item when considering a major gift.
We cannot predict the future and do not know when tax law change will happen. We do know these planning techniques are available today.
Do not miss your chance to implement these strategies in your tax and financial plan. Contact us at (508) 797-5003 to discuss how we can help.