​5 Things Business Owners Need to Know about the Upcoming Tax Season

Despite the global pandemic, there weren’t a ton of tax changes in 2020. But there are still a lot of things business owners should know and consider when it comes for planning for next tax season.

1. Taxpayers that aren’t corporations might qualify to deduct as much as 20% of their qualified business income.

So, for 2020, if your taxable income exceeds $326,600 for a married couple filing jointly and $163,300 for those who are single, married filing separately, and heads of household, your deduction might be limited based on:

• Whether you’re in a service-type trade or business, like:
  • Law
  • Accounting
  • Health
  • Consulting
• The amount of W-2 wages paid by the trade or business, and/or
• The unadjusted basis of qualified property — like machinery and equipment — that your trade or business owns.

The limitations are phased in, so contact us for more details about those taxable income levels.

2. It’s now possible for more small business owners to use the cash method of accounting, as opposed to the accrual method.

If you’re considering the cash method, you claim income when you receive payment (not when billed), potentially pushing the income to next year, by accelerating expenses, or by pre-paying certain bills. Cash method taxpayers may find it a lot easier to shift income, for example, by holding off billings till next year or by accelerating expenses, or by paying bills early or making certain prepayments.

3. For corporations, the taxable income limit for cash charitable donations is now 25%, up from 10%. It’s also now 25% on food inventory contributions, up from 15%.

4. Your business can claim a 100% bonus first-year depreciation deduction for new — and some used — machinery and equipment if you bought it and put it in service in 2020. You can take advantage of the tax write-off even if those assets are only in service for a few days this year.

5. As we mentioned in a previous blog, if you took out a PPP loan for your business because of the pandemic, you won’t be able to deduct those expenses on your taxes if your loan’s forgiven. However, if you have a PPP loan that the government doesn’t forgive, then your business can deduct those expenses.

If you have questions about your business’s 2020 taxes, we’re here to answer them.