2020 Year End Tax Planning for Businesses and Individuals
Year-end tax planning is always challenging, but President-Elect Biden entering the White House along with the coronavirus pandemic have added a whole new layer of complexity to the equation. The balance of power in the Senate will be determined after the Georgia run-off elections on January 5, 2021. A Republican win could hamper Biden’s tax plans. And to complicate matters even more we have several new significant pieces of tax legislation added in 2020 such as the CARES Act and the SECURE Act. With all these new considerations, we’ve shared some key ideas that individuals and businesses should consider before the New Year. Each taxpayer’s situation is different and we are here to help evaluate your position so you can decide the best moves to take.
With so many changes in the tax law, it is strongly recommended to have a tax plan in place. Even though most laws are the same for 2020 as they have been since 2018, your income and deductions may have changed which will make your tax results very different. The best way to start is by identifying any changes in your personal tax situation.
Businesses were greatly impacted by the TCJA. While the rules for 2020 are mostly the same as in 2019, it is imperative to consider the TCJA rules as part of your tax plan. One huge difference from 2019 is the passage of the CARES Act to help combat the economic fallout of the COVID-19 pandemic. Under TCJA Corporate tax rates were cut to a flat 21% (previously 35%), and the addition of the QBI deduction (20% business income deduction) for other taxpayers (noted above) is the most profound. Is your structure the most optimal under the new rules? The TCJA also expanded the small business gross receipts threshold to $26 million for 2020, which allows businesses to elect or remain eligible for various accounting methods, such as utilizing the cash method of accounting and treating inventory as non-incidental materials and supplies, or to avoid the uniform capitalization rules for resellers and manufacturers. Your business’ taxable income could be much lower under the cash method of accounting or through various other method changes allowed for small businesses.
These are some of the year-end steps that can be taken to minimize your tax burden. We can help tailor a customized plan that will work best for your tax planning goals. Additional ideas and information may be found in our 2020 Tax Planning Guide.
Please contact your BMF Advisor if you would like to review any of the items mentioned, schedule a tax planning strategy session or discuss potential implications of the various tax law changes.
Cindy H. Mitchell?>
Michael A. Hydell?>
About the Authors
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