Tax Planning

Yr-end tax planning methods for entrepreneurs

There are a number of year-end tax planning strategies available to entrepreneurs to help reduce their tax liability. Here is a look at some of them:

Defer income

Businesses using the cash payment method can postpone revenue to 2022 by postponing year-end invoices so that payment is not made until 2023. Companies using the accounting method can postpone revenue to January 2022 by deferring the delivery of goods or services.

Buy new office equipment

  • Bonus d companies are allowed to immediately deduct 100% of the cost of eligible property such as machinery and equipment that is put into operation after September 27, 2017 and before January 1, 2023 – annual period: 80% in 2023, 60% in 2024 , 40% in 2025 and 20% in 2026.

The 100% bonus depreciation deduction for the first year is available for qualifying assets even if they are only put into operation for a few days in 2021.

  • § 179 e Companies should use the costs according to § 179 this year if possible. In 2021, organizations can decide as an expense (immediately deduct) the total cost of most new equipment up to a maximum of $ 1.05 million of the first $ 2.62 million of real estate commissioned through December 31, 2021 . Note that section 179 Deduction must not exceed net taxable income from commercial operations. The deduction will be phased out for amounts in excess of the $ 2.62 million threshold and will be eliminated for amounts in excess of $ 3.67 million.

Computers or peripheral devices that were put into operation after December 31, 2017 are not included in the listed properties.

Small business tax credit

Small business employers with 25 or fewer full-time equivalent employees with an average annual wage of $ 50,000 that is inflation-indexed (e.g., $ 56,000 in 2020) may be eligible for a tax credit to pay for employee health insurance. The credit is 50% (35% for non-profit organizations).

Repair regulations

If possible, repairs and expenses should be deducted immediately at the end of the year and not capitalized and depreciated. Small businesses lacking Applicable Financial Statements (AFS) can take advantage of the de minimis safe harbor process by deducting smaller purchases ($ 2,500 or less per purchase or invoice). Companies with valid annual accounts can deduct $ 5,000. Small businesses with gross revenues of $ 10 million or less can also use Safe Harbor for repairs, maintenance, and improvements to eligible buildings.

retirement plans

Self-employed people who have not yet done so should set up an independent pension plan by the end of 2021.

dividend planning

Reduce accumulated corporate profits and profits by issuing corporate dividends to shareholders.

Paid family and sickness credit

A trade tax credit is available to employers who grant qualified workers paid family and sick leave until 2025. Employers must have a written policy that meets certain requirements and other conditions. The credit, which is scheduled to expire in 2020, has been extended to 2025. It ranges from 12.5% ​​to 25% of the wages paid to eligible employees for up to 12 weeks of family and sick leave per tax year.

This column is for information only and is not advice. Taxes are complicated and mistakes can be costly. Consider seeking advice from professionals on tax matters.

Norm Grill, CPA, is the managing partner of Grill & Partners, LLC, certified accountants and consultants for closely managed businesses and high net worth individuals with offices in Fairfield and Darien, 203-254-3880.

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