4 End-of-Year Tax Tips For Small Businesses

As the year comes to an end, many small businesses are looking ahead to what their next tax year will look like and last-minute ways to extend or even cut their tax bill.

Take a look at these end-of-year tax tips from experts in the business tax industry to see if there’s something you can use. 

Set Up/Contribute To A Retirement Plan

Establishing and contributing to a tax-favored retirement plan could help your business lessen its tax bill.

“Small businesses are sometimes reluctant to save for retirement because they don’t have enough cash,” says CPA Mike D’Avolio, a senior tax analyst with Intuit ProConnect Group. “For some plans, the rules allow you to wait until the filing deadline to contribute and still get a deduction for the previous year.”

There are several retirement plans available for small businesses that allow the employer and employee a tax-favored way to save for retirement. Contributions made by the owner for themselves and for employees can be deducted. 

“Furthermore, the earnings on the contributions grow tax free until the money is distributed from the plan,” writes D’Avolio in a blog posted on CPA Practice Advisor website. 

If you are self-employed and set up a SEP-IRA, you can contribute up to 20 percent of your self-employment earnings, with a maximum contribution of $56,000 for 2019, writes Bill Bischoff in a Marketwatch blog. Other options include a 401(k) plan, which can be set up for just one person, a defined benefit pension plan or a SIMPLE-IRA. 

The deadlines:  If you’re establishing a SEP-IRA for a sole proprietorship business, you’ll need to set it up and make an initial deductible contribution for the 2019 tax year by Oct. 15, 2020, if you extend your 2019 return to that date, says Bischoff. 

The other types of plans, generally speaking, will need to be established by Dec. 31, 2019 if you want to make a deductible contribution for the 2019 tax year. The deadline for the contribution itself is the extended due date for your 2019 personal return, according to Bischoff.

Claim 100% first-year bonus depreciation for qualified asset additions

It might make sense to invest in depreciable property before year’s end to reduce your taxable income and save on your business tax bill. 

“The government increased bonus depreciation from 50% to 100%,” says D’Avolio.  “Generally, bonus depreciation applied to personal property, such as furniture and equipment and now, used property also qualifies.”

Your business might be able to write off the entire cost of some or all of your 2019 asset additions on this year’s return under the Tax Cuts and Job Act (TCJA), according to Bischoff. The TCJA allows for a 100 percent first-year bonus depreciation for qualified new and used property that is acquired and placed in service in your business in calendar year 2019. 

Claim bonus depreciation for heavy SUV, pickup, or van

Because heavy SUVs, pickups and vans are treated for tax purposes as transportation equipment, they can qualify for 100 percent, first-year bonus depreciation, writes Bischoff.

The 100 percent bonus depreciation provision applies for new and used heavy vehicles used over 50 percent in your business.

However, it only applies if the SUV, pickup or van has a manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds. (You can find GVWR on the manufacturer’s label.)

Last-minute move: If you’re considering adding an eligible vehicle, you should buy it and place it into service before the end of this tax year to be eligible for the “juicy write-off on this year’s return,” Bischoff notes.

Improve Record Keeping 

Whether you’re a startup or have been up and running for years, you know how important it is to keep good records for your small business – it’s an integral part of being successful.

But that need is illuminated come year’s end, when good and accurate records for tax purposes are a crucial tool for your tax savings as well as compliance.

Accurate recordkeeping not only helps you monitor the financial health and progress of your business, D’Avolio says, it means you can more easily identify sources of income and expenses and lead you to easier financial statement and tax return preparation.

For efficiency, the CPA recommends small businesses choose an electronic, cloud-based system (such as QuickBooks Online) to record transactions and track revenue and expenses.

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