Even though mid-December is upon us, there are several tax planning opportunities still available to reduce a business’s 2019 federal income tax bill, if you act NOW!
Defer Income – C corps enjoy a flat 21% statutory tax rate and pass-through entities are now taxed at lower rates, still income deferral remains an important tool in business tax planning. If a taxpayer expects taxable income to be higher in 2019 rather than 2020, or if the taxpayer anticipates being taxed at a higher rate in 2019 than 2020, there may be a benefit to deferring income into 2020. Of course a different strategy may be needed if a business owner is subject to the individual AMT, or an S corp is subject to the passive investment income tax.
Maximize the 199A QBI Deduction – Taxpayers other than corporations may be eligible for up to a 20% deduction of qualified business income (QBI). However, for 2019, if taxable income exceeds certain amounts: $321,400 for married filing joint, $160,700 for single or head of household, and $160,725 for married filing separately, the deduction may be limited. To stay under the taxable income limits and maximize the deduction, consider deferring income into 2020.
Take Advantage of Bonus Depreciation – For property acquired after September 27, 2017, and placed in service during 2019, a taxpayer may deduct 100% of the cost of qualified property in 2019. Bonus depreciation applies to new as well as used property now.
Consider a 179 Election – Businesses purchasing equipment may make a “179 election” which allows for a current deduction of otherwise depreciable business property and qualified real property. Certain improvements to nonresidential real property (think roofs, heating, ventilation, security systems), that may not be eligible for bonus depreciation, are eligible for the 179 election. For 2019, taxpayers may elect to expense up to $1,020,000 of equipment costs (with a phase-out for purchases exceeding $2,550,000).
Write off Bad Debts – Use the accrual method? Accounts receivable that are totally or partially worthless should be written off so the taxpayer is entitled to a deduction.
Accelerate 2019 Employee Bonuses – In general, an employer’s liability for employee bonuses accrues and is deductible for the current year even though the bonus is paid in the following year. Employers may accelerate the deduction into the current year though employees report the income in the following year if they are cash method taxpayers.
Accelerate Tax Payments into 2019 – For taxpayers that pay payroll and other taxes on a quarterly basis, consider accelerating 2019 4th quarter payroll and other taxes at December 31 year-end, as well as state income and other types of tax payments if your business might benefit from a 2019 deduction.
CONTACT US: There is no better time to consider your year-end tax planning! Our business clients both big and small have benefitted from these tax minimization techniques, you can too. Deferring income and accelerating expenses and the other strategies above work best if implemented now. Call toll free to talk to our tax experts: 855-534-2727.
