This has been a turbulent financial year for individuals and businesses alike, thanks to the havoc wrought by the spread of the COVID-19 pandemic. As we approach the end of the year, it is more important than ever for businesses to focus on their tax planning. The tax strategies you employ could make a difference in your company’s viability moving forward and could help to get you on the right financial path heading into the new year.
With this in mind, here are a few 2020 year-end tax planning tips for you to take into account for your company in Union City, NJ.
- Leverage your losses: Under the CARES act, businesses are allowed to use their current losses against their past income to get immediate refunds. Net operating losses NOL) from tax years 2018, 2019 and 2020 can be carried back five years for tax refunds against previous taxes, and the losses can offset income at higher tax rates in place before 2018. If you know you will have losses in 2020, you should get started with your preparations now so you can file early, because you will be unable to claim NOL carryback refunds until you file your 2020 tax return.
- Hasten AMT refunds: The Tax Cuts and Jobs Act repealed the corporate alternative minimum tax (AMT) but allowed corporations to claim unused AMT credits in tax years through 2021. However, the CARES act sped this timeline up, meaning corporations could claim all remaining credits in 2018 or 2019. Companies can claim AMT credits by filing tentative refund claims on Form 1139 before December 31.
- Disaster loss refunds: Businesses can claim some losses that are attributable to disasters on a prior year tax return. The COVID-19 pandemic was subject to a disaster declaration that covered all 50 states, Washington, D.C. and five territories, meaning every business in the country is likely eligible for refunds from certain pandemic-related losses. You can even claim COVID-19 related losses that occurred in 2020 on a 2019 amended return if you wish to get your refund faster.
- Retroactive refunds for additional depreciation: Under the CARES act, bonus depreciation is expanded to apply to a wider range of qualified improvement properties (QIPs). QIP applies to almost all improvements to a building’s interior, whether owned or leased. This is retroactive, and you can fully deduct qualified improvements going back to January 1, 2018, which can give you some faster refunds.
- Improve your efficiency: Many businesses simply run inefficient tax departments, which can make it difficult for you to meet deadlines and result in you having a greater risk of audits and penalties. As part of your 2020 year-end business taxes, find ways to automize certain tax and accounting functions and make better use of analytics. This can help you be more proactive with your tax planning rather than focusing solely on compliance.
These are just a few examples of some of the strategies you should implement when planning for your 2020 year-end business taxes. With the end of the year coming up shortly, contact our accounting firm in Union City, NJ for assistance.
Categorised in: Tax Preparation