In this 4-minute read:
- Impacts of COVID-19
- Your income
It’s getting to be that time of year. During this last quarter, it’s important to start thinking about and planning for your year-end business taxes early so that you can be prepared and have peace of mind through the holidays.
We’ll go over some important year-end tax tips that you need to be thinking about now.
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Impacts of COVID-19 relief funds on taxes
Your tax situation may look pretty different in 2020 due to the coronavirus pandemic and its impacts on business operations and relief funds. While we encourage you to hire an accountant who can help you sort our what expenses are deductible and how your business taxes will be affected by your relief funds, we do have a couple insights to share.
In regards to the PPP loan: The CARES Act states that any forgiven PPP loan amount won’t be included as taxable income, meaning you won’t pay taxes on it. However, the IRS did release a statement that declared that any expenses that were covered by the forgiven loan cannot be deducted from your taxes.
In regards to the EIDL (Economic Injury Disaster Loan): The loan itself doesn’t have any special tax treatments because it is a loan that you have to pay back. But if you received that EIDL advance, that can have an impact on your taxes. The advance is a grant for small businesses. Because that portion of the relief money isn’t a loan, it may need to be filed as taxable income. While the IRS hasn’t specifically said anything about this grant, they have required forgiven SBA loans in previous years to be filed as taxable income.
Year-end tax deduction tips
Now is the time when business owners try to find as many things as they can to expense and deduct from their taxes. While that’s all fine and good, we urge you not to make large purchases just for the tax breaks. Think about the things that your business really needs in the next several months and what you can and should purchase now.
Some things that list might include:
- Stocking up on office supplies (copy paper, pens, notebooks, whiteboard markers, staples, etc.)
- Replacing old or worn down office equipment
- Maintenance and repairs
- Gifts for customers
- Gifts or bonuses for your employees
- New vehicle (if necessary)
- Contribute to charity
- Advances on vendor payments
Even though you can deduct an expense from your taxes, you should still make smart purchasing decisions.
You may also like: Small business taxes: what you need to know
Your income and retirement
You can decide when to take out your income for December. Any income that you receive by December 31 counts toward this year’s income, but if you shift that date to January 1, then it goes towards the next year’s income.
Depending on your income levels each year, this could save you a significant amount of money in taxes. So talk to your accountant to determine if it makes sense to defer your income to January or to take in it this year.
Another way to reduce your income for the year is to make a contribution to your retirement plan–or setting one up if you don’t already have one. You can max out your contributions by December 31 to reduce your income level for the year.
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