Despite all odds, Utah’s economy continues to grow thanks to the hard work and diligence of the state’s workforce and so many of its great companies. Not without the obvious challenges Utah businesses face today, agility and innovation remain hallmarks of the Beehive State.
No matter where your company is in the spectrum – large or small, startup or established, flourishing or still in pivot mode – tax planning at the end of the year is essential.
While you have likely focused on adapting to a new business landscape, the tax landscape has also changed. Beyond PPP loans and loan waivers, the CARES Act has unleashed a confetti of tax regulations that can provide additional relief both in the years to come and in past returns.
Here are five of the most important and beneficial tax planning considerations for 2021 and 2022 companies in Utah.
- Strategy for possible tax law changes. Although no tax professional has a crystal ball, after President Biden’s inauguration, we can confidently expect changes to the tax law to come. Nevertheless, every day we gain more insight into possible changes in tax legislation. Therefore, planning now will help you develop a better strategy for the future – if you don’t, it can be costly and set you back compared to your competitors.
- Not all research and development involves white coats. Are you developing a new product, a new software, a new formula, a new process, a new technology or something similar? If so, you could miss out on significant tax benefits related to the money you put into these projects. I’m not just talking about your white coat scientist who works in a laboratory with test tubes and beakers. The R&D tax credit is granted to so many more companies than they even know. There aren’t too many home runs in the tax world, but when it comes to R&D tax credit, Babe Ruth would point over that midfield fence. Ask your tax advisor about the R&D tax credit today to ensure you are maximizing your company’s tax benefits and not leaving money on the table.
- Choose the right entity type for your company. Do you want to start a legacy business? Are you selling your business? Raise capital? Distribute profits? Expand internationally? These are some of the questions you need to ask yourself in order to determine which entity type will be most beneficial for your business. Even if you find your company in a sub-optimal tax structure, it is probably not too late. As your company constantly adapts and evolves, so too can the type of entity your company works for.
- Update depreciation on Qualified Improvement Property (QIP). An accidental oversight of the Tax Cuts & Jobs Act made QIP depreciable over 27.5 or 39 years and not eligible for BONUS depreciation. The CARES Act remedied this failure by restoring the 15-year life of QIP and entitling it to a 100% BONUS write-off in the year of acquisition. The result? The ability to deduct more depreciation charges in 2020 and beyond, or in earlier years through 2018.
- Don’t forget to bring all of your business to the table. You may not be the first in your line of business, but nobody is like you. Help your CPA understand your company’s history. Let them know what options you are considering for the future. How many companies in today’s environment will most of your workforce continue to work remotely? Are you considering outsourcing a business unit, acquiring another company, terminating a lease, raising capital or selling real estate? Your income and expenses can differ significantly from what they were before the pandemic, and this can mean a very different tax outlook than you have in the past. Some decisions can have unforeseen tax consequences. If you are sincere with your tax advisor, you can get the most benefit by helping you avoid pitfalls and capitalizing on tax saving opportunities.
Make an appointment today with your trusted financial advisor or CPA so you can take the necessary action before the end of the year.