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Business Tax Breaks Thanks to the Recently Enacted CAA

Business Tax Breaks Thanks to the Recently Enacted CAA

When you operate a business, you have a variety of tax breaks available.

The recently enacted Consolidated Appropriations Act extends and expands some of the breaks. We bring the following selection of them to your attention as a tax-strategy buffet.

  • You can deduct 100 percent of your dine-in and take-out business meals that are provided by restaurants in 2021 and 2022.
  • For hiring members of 10 targeted groups, you can obtain the work opportunity tax credit for first-year wages through 2025.
  • You can now qualify for the 39 percent new markets tax credit for investments through 2025.
  • The empowerment zone tax breaks that were scheduled to expire on December 31, 2020, are extended through 2025, but the new law terminates, for 2021 and later, both (a) the enhanced first-year depreciation rules and (b) the capital gains tax deferral break.
  • Employers may continue through 2025 making Section 127 education plan payments that cover student loan principal and interest up to the plan maximum of $5,250.
  • For residential rental property that you placed in service before 2018 and were depreciating over 40 years under the straight-line method, you can now use 30 years if you elect out of the Tax Cuts and Jobs Act business interest expense limitations.
  • Farmers may elect a two-year net operating loss carryback rather than the five-year carryback retroactively, as if this change were in the original CARES Act.
  • The $1.80 per-square-foot or $0.60 per-square-foot deductions for energy-efficient improvements to commercial buildings are now permanent.
  • Small Business Administration Economic Injury Disaster Loan advances and loan repayment assistance are not taxable, and you suffer no tax attribute reductions as a result of the tax-free monies.
  • Manufacturers of residential homes can claim a credit of $1,000 or $2,000 for homes that meet applicable energy-efficiency standards through 2021.
  • Your business can claim a business federal income tax credit for up to 30 percent of the cost of installing non-hydrogen alternative-fuel vehicle refueling equipment (say, for your employees’ electric vehicles) through 2021.
  • Your business can claim a federal income tax credit for buying vehicles propelled by chemically combining oxygen with hydrogen to create electricity, through 2021 (credits range from $4,000 to $40,000).
  • The new law extends the seven-year recovery period to cover motorsports entertainment complex property placed in service through 2025.
  • You can elect to claim the first-year write-off for the cost of qualified film, television, and theatrical productions commencing before 2025, subject to a $15 million per-production limit or a $20 million limit for productions in certain disadvantaged areas.
  • For racehorses that are no more than two years old that you place in service during 2021, you may use three-year depreciation.

You do have to admire the opportunities that the tax law contains to help businesses. If you would like my help with any of the above, please don’t hesitate to contact us.

Sigma Accountants – Best Columbia Maryland Based CPA Firm

Sigma accountants are the best Tax Accountant in Maryland. We provide pocket-friendly accounting, bookkeeping, and consultancy services to dentists, dental practitioners, doctors, medical practitioners, and small businesses. We specialize in accounting for dental practices and help them increase their net worth.

Our accurate reporting and on-time accounting services make us the best CPA In Columbia MD. Get in touch for a free consultation today and experience the best tax preparation services in Columbia, MD.

You can contact us via the contact form or follow us on social media for timely updates. Facebook, Instagram, LinkedIn.

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Business Tax Breaks Thanks to the Recently Enacted CAA

Business Tax Breaks Thanks to the Recently Enacted CAA

The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020.

The legislation adds a few new federal income tax breaks for businesses and extends a bevy of other business breaks that were set to expire at the end of 2020.

This article covers the most important things that small-business owners need to know. Note that you find the tax changes explained here in the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA) and the COVIDRelated Tax Relief Act of 2020 (COVIDTRA). The CAA included both acts inside its 5,593 pages.

100 Percent Deductions for Business Meals Provided by Restaurants

Under the new law, you may deduct 100 percent of the cost of business-related food and beverages provided by restaurants in 2021 and 2022.

The “provided by” language ensures that this break applies equally to take-out and sit-down meals. In the past, you could generally deduct only 50 percent of the cost of business meals. The temporary 100 percent deduction rule is intended to help restaurants survive COVID-19 economic fallout. Good idea!

Work Opportunity Credit Extended for Five Years

Your business can claim the work opportunity tax credit (WOTC) for hiring members of 10 targeted groups. Before the CAA, the WOTC applied to first-year wages paid to qualifying employees who were hired before 2021.

New law. The TCDTRA extends the WOTC to cover first-year wages you pay to qualifying employees hired through 2025.

New Markets Credit Extended for Five Years

The new markets federal income tax credit can be claimed by both individual and corporate taxpayers. The credit equals 39 percent of a taxpayer’s capital investment in a qualified entity that commits to the rules of the new markets tax credit program.

In turn, the recipient entity must loan or invest substantially all of the invested capital in qualified businesses that operate in low-income communities. Before the CAA, a $5 billion allocation was made to the new markets tax credit program for 2020.

New law. The TCDTRA extends $5 billion annual allocations to cover allocations made through 2025. The TCDTRA also extends the carryover period for taxpayers to utilize unclaimed new markets tax credits through 2030.

Some Empowerment Zone Breaks Extended for Five Years (Others Allowed to Expire)

You can claim special federal income tax incentives in census tracts designated as empowerment zones. In these zones, taxpayers are potentially eligible for 20 percent wage credits, enhanced first-year depreciation deductions, tax-exempt bond financing, and deferral of federal capital gains taxes when qualifying assets are sold and sales proceeds are reinvested in other qualifying assets.

Before the CAA, empowerment zone designations were scheduled to expire on December 31, 2020.

New law. The TCDTRA extends through 2025 the period for which empowerment zone designations can remain in effect. But the new law terminates the enhanced first-year depreciation rules for property placed in service in tax years beginning in 2021 and beyond. The new law also removes the capital gains tax deferral break for sales in tax years 2021 and beyond.

Tax-Free Treatment for Employer Section 127 Plan Payments Toward Employee Student Loans Extended

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allowed federal-income-tax-free treatment for payments made by employer-sponsored Section 127 educational assistance plans toward student loan debts of participating employees. Between March 28, 2020, and December 31, 2020, the employer could pay up to $5,250 per employee toward principal and interest with no federal income tax hit for the employee. Employers could deduct the payments.

New law. The TCDTRA extends this break to cover qualifying student loan debt payments made under Section 127 plans through 2025.

Liberalized Depreciation Rule for Residential Rental Property Owned by Electing Real Estate Businesses

For tax years beginning in 2018 and later, the Tax Cuts and Jobs Act (TCJA) imposed new limitations on deductions for business interest expense.

But real property businesses can elect out of the TCJA business interest expense limitations by choosing to depreciate non-residential real property, qualified improvement property, and residential rental property using the straight-line method over 30 years, under the so-called alternative depreciation system (ADS).

If you make this election, it applies to affected property placed in service in 2018 and later.

New law. For tax years beginning in 2018 and later, the TCDTRA assigns the 30-year depreciation period to residential rental property that was placed in service before 2018, if the property was already being depreciated under ADS and is held by a real property business that elects out of the TCJA business interest expense limitations.

Before this change, you had to depreciate such property over 40 years under the pre-TCJA ADS rules.6

More Flexible Rules for Farming Losses

Taxpayers with net operating losses (NOLs) from farming are allowed to choose to carry back those NOLs to the two preceding tax years. You can also choose to waive the carryback privilege and instead carry farming NOLs forward to future tax years.

The CARES Act allowed farming NOLs that arose in tax years beginning in 2018-2020 to be carried back for five years, as a tax relief measure.

New law. The COVIDTRA allows farmers that elected the two-year NOL carryback option before the CARES Act became law to elect to retain that two-year carryback rather than follow the five-year carryback rule set forth in the CARES Act.

The new law also allows farmers that previously waived the carryback privilege to revoke the waiver. These changes apply retroactively as if they were included in the CARES Act on Day One.7

Deduction for Energy-Efficient Commercial Buildings Made Permanent

Commercial building owners can claim deductions for energy-efficient improvements to lighting, heating, cooling, ventilation, and hot water systems and to building envelopes. The write-off equals $1.80 per square foot, or $0.60 per square foot if certain subsystems meet energy-efficiency standards but the entire building does not.

New law. The TCDTRA makes this deduction permanent and adds an inflation-adjustment feature for tax years beginning in 2021 and later.

Tax Impact of CARES Act Loan Forgiveness and Financial Assistance Favorably Clarified

The CARES Act expanded access to Economic Injury Disaster Loans (EIDLs) from the Small Business

Administration (SBA) and allowed EIDL applicants to request $10,000 advances.

The CARES Act also granted loan repayment assistance to eligible EIDL recipients.

The COVIDTRA clarifies that federal-income-tax-free treatment applies to forgiven EIDLs and certain loan repayment assistance. Another clarification stipulates that deductions and tax basis increases are allowed for expenditures paid with forgiven amounts, and that no tax attribute reductions are required as a result of the forgiven amounts.

Credit for Energy-Efficient Manufactured Homes Extended

Manufacturers of residential homes can claim a credit of $1,000 or $2,000 for homes that meet applicable energyefficiency standards.

New law. The TCDTRA extends the credit to cover new homes that are acquired from manufacturers in 2021 for use as residences.

Credit for Alternative-Fuel Vehicle Refueling Equipment Extended

Your business can claim a federal income tax credit for up to 30 percent of the cost of installing non-hydrogen alternative-fuel vehicle refueling equipment (say, for your business’s Tesla fleet—or more likely for use by your employees who own electric vehicles).

New law. The TCDTRA extends this break to cover qualifying 2021 expenditures.

Credit for Fuel Cell Vehicles Extended

Your business can claim a federal income tax credit for buying vehicles propelled by chemically combining oxygen with hydrogen to create electricity.·

The base credit is $4,000 for vehicles weighing 8,500 pounds or less.

Heavier vehicles can qualify for bigger credits of up to $40,000.

An additional $1,000 to $4,000 credit is available to cars and light trucks to the extent their fuel economy meets federal standards.

New law. The TCDTRA extends this break to cover qualifying 2021 purchases.

Takeaways

Here’s a bird’s-eye look at the changes in this article:

  • You can deduct 100 percent of your business meals that are provided by restaurants in 2021 and 2022
  • For hiring members of 10 targeted groups, you can obtain the work opportunity tax credit for first year wages through 2025.
  • You can now qualify for the new markets 39 percent tax credit for investments through 2025.
  • The empowerment zone tax breaks that were scheduled to expire on December 31, 2020, are extended through 2025, but the new law terminates, for 2021 and later, both (a) the enhanced first year depreciation rules and (b) the capital gains tax deferral break.
  • Employers may continue through 2025 making Section 127 education plan payments that cover student loan principal and interest up to the plan maximum of $5,250.
  • For residential rental property that you placed in service before 2018, which you were depreciating over 40 years under the straight-line method, you can now use 30 years if you elect out of the TCJA business interest expense limitations.
  • Farmers may elect a two-year NOL carryback rather than the five-year carryback, retroactively, as if this change were in the original CARES Act.
  • The $1.80 per-square-foot or $0.60 per-square-foot deductions for energy-efficient improvements to commercial buildings are now permanent.
  • SBA EIDL advances and SBA EIDL loan repayment assistance are not taxable, and you suffer no tax attribute reductions as a result of the tax-free monies.
  • Manufacturers of residential homes can claim a credit of $1,000 or $2,000 for homes that meet applicable energy-efficiency standards through 2021.
  • Your business can claim a business federal income tax credit for up to 30 percent of the cost of installing non-hydrogen alternative-fuel vehicle refueling equipment (say, for your employees’ electric vehicles) through 2021.·
  • Your business can claim a federal income tax credit for buying vehicles propelled by chemically combining oxygen with hydrogen to create electricity, through 2021 (credits range from $4,000 to $40,000).

Sigma Accountants – Best Columbia Maryland Based CPA Firm

Sigma accountants are the best Tax Accountant in Maryland. We provide pocket-friendly accounting, bookkeeping, and consultancy services to dentists, dental practitioners, doctors, medical practitioners, and small businesses. We specialize in accounting for dental practices and help them increase their net worth.

Our accurate reporting and on-time accounting services make us the best CPA In Columbia MD. Get in touch for a free consultation today and experience the best tax preparation services in Columbia, MD.

You can contact us via the contact form or follow us on social media for timely updates. Facebook, Instagram, LinkedIn.

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PPP1 Alert: New Shot for Your Tax-Free Cash

PPP1 Alert: New Shot for Your Tax-Free Cash

Did you miss out on the first two opportunities to receive your tax-free Paycheck Protection Program (PPP) cash because you didn’t have a reliable accounting firm in Columbia, MD?

  • Many did miss out.
  • Why, you ask?
  • One of the primary reasons – the word “loan.”
  • Who wants a loan? No one! Well, almost no one.
  • But who wants a cash gift, tax-free?

If you too want it, read on for the details. But first, you should know that the big picture works like this:

  1. You obtain your PPP tax-free monies from a lender with the help of a CPA firm In Columbia MD (it’s called a “loan,” but watch that word disappear as you read this blog).
  2. You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies); and other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection. Need a Tax Accountant in Columbia MD, to help you with the classification of expenses? we’re just a call away
  3. Apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 percent or more of the money on payroll (and yourself if you are self-employed or a partner in a partnership).
  4. Deduct the expenses you paid with the PPP loan monies forgiven.

New Money on the Table

The new COVID-19 stimulus act sets aside $35 billion for first-time PPP applicants, with $15 billion of that made in loans for first-time applicants with 10 employees or fewer or made in amounts less than $250,000 to businesses in low-income areas.

New Deadline

The new deadline of March 31, 2021, replaces the expired deadline of August 8, 2020.

The monies available in this new round of PPP funding are on a first-come, first-served basis. Don’t procrastinate. Get your application for your first-time PPP monies in place now. Our accounting and tax preparation firm in Columbia, MD can help you.

Your accountants In Maryland can help you prepare and claim the monies on payroll (including pay to you, if that applies); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.

You or your Tax Accountant apply for loan forgiveness and achieve 100 percent loan forgiveness, which is easy-peasy when you spend 60 percent or more of the money on payroll (yourself if you are self-employed or a partner in a partnership).

First-Draw Rules

  • The first piece of good news is that the new, favorable PPP rules in the recent stimulus law apply as if they were in the CARES Act enacted a little more than nine months ago, on March 27, 2020.
  • The second piece of good news is that numerous changes made by the Small Business Administration that affect the loan application and forgiveness process have been clarified during the past nine months.
  • The third piece of good news is that the lenders have a better idea of what they are doing, so you can spend less time applying for your free PPP money.
  • The fourth piece of good news? Our Columbia Maryland CPA firm can and will help you from start to end. Contact us today

What’s the Limit on My Cash Infusion?

You have a $10 million limit on your initial PPP loan. For most small businesses, that’s not likely to come into play. If it does, you’ll need an excellent accounting Firm In Columbia, MD, to back you.

In general, the real limit is 2.5 times your business’s defined or deemed 2019 payroll. The deemed payroll for a proprietorship is based on the owner’s Schedule C net profit, on line 31 of the 2019 Schedule C. For partners, it is based on a more complicated calculation of 2019 self-employed income, as adjusted. Need help understanding the limits? Give our CPA In Columbia MD, a chance to help.

As of January 14, 2021, in the IFR issued on January 6. The treasury exercised its authority under section 1109 of the CARES Act to allow borrowers of first draw PPP loans to use 2019 or 2020 to calculate their maximum loan amount.

Example. Susan has a 2019 defined payroll for PPP purposes of $1,200,000, or $100,000 a month. She operates a dental practice. Her PPP cash infusion is $250,000 ($100,000 x 2.5).

Make sure to check the links above for your specific limits, as they vary for C corporations, S-corporations, proprietorships, and partnerships. We at Sigma would love to take the burden off your shoulder. Contact our Accounting Firm In Columbia, MD, for fantastic service.

What Do I Have to Spend the Money On?

Under the new rules, you pick a spending period between eight weeks from the origination date of the loan and 24 weeks from that date.

To achieve 100 percent forgiveness, you must use 60 percent or more of the monies for defined payroll during this period. A Tax Accountant in Columbia MD like Sigma can help you achieve 100 forgiveness.

Example. You obtain $100,000 in first-draw PPP monies. You spend the entire $100,000 during the 11 weeks immediately following the date you received the loan—$65,000 for payroll and $35,000 for other covered expenses. You qualify for 100 percent forgiveness.

In addition to payroll, covered expenses include the following:

  • Rent
  • Interest on mortgage obligations
  • Utilities
  • Operations expenditures
  • Property damage
  • Supplier costs
  • Worker protection

What If I Spend Less Than 60 Percent on Payroll?

Let’s say you obtain a $100,000 loan but use only $48,000 (48 percent) for payroll. The PPP rules limit your total loan forgiveness to $80,000 ($48,000 ÷ 60 percent). That’s still a great deal.

Takeaways

Keep the big picture in view. It works like this:

  1. You obtain your PPP tax-free monies from a lender.
  2. You spend all the PPP money on yourself if you are self-employed or operate as a partnership; on payroll (including pay to you, if that applies because you operate as a corporation); and on other covered expenses such as rent, interest, utilities, operations, property damage, suppliers, and worker protection.
  3. You apply for loan forgiveness, and you achieve 100 percent loan forgiveness when you spend 60 percent or more of the money on payroll (including pay to yourself if you are self-employed or a partner in a partnership).
  4. You deduct the expenses that you paid with the PPP loan monies that were forgiven.
  5. You will not find a better deal than the PPP. If you are eligible for initial PPP monies, get your application in place now.

You will not find a better deal than the PPP. If you are eligible for the intimal PPP monies, get your application in place now with the help of a leading tax and small business accountant like Sigma. Contact us today.

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Tax Free PPP Money

Round 2: Additional Tax-Free PPP Money for You?

Did you receive money from a lender under the existing Paycheck Protection Program (PPP)? If so, you may qualify for more tax-free money. Wondering how you can claim it? allow our Accounting Firm In Columbia, MD to help.

First, let’s clarify what’s happening. When you think of the PPP program, what do you think?  “tax-free money” or “loan”? Allow me, a Tax Accountant Maryland to help.

Think “tax-free money.” That’s exactly what it is. Easy, right?

Sure, it comes in the form of a loan, and you could be under the impression that you have to pay it back—but you don’t. You just have to use 60 percent or more of it for defined or deemed payroll. Need a Small Business Accountant Columbia MD to help with it? Feel free to get in touch.

Okay, that’s good news part 1. – Read More – New PPP Forgiveness Rules for Past, Current, and New PPP Money

Now on to good news part 2. The expenses you pay with the forgiven PPP monies are tax-deductible.

It’s the perfect deal. Take advantage of it if you can today, allow an expert CPA In Columbia MD to help.

How Do You Qualify for the New Second-Draw PPP Money?

To qualify for the second-draw PPP money, you must

  1. have 300 or fewer employees;
  2. have suffered a 25 percent or greater loss in revenue during at least one quarter of 2020 when compared to 2019; and
  3. have already used your original PPP money or be planning to use it soon

Example. John had $1 million in quarterly revenue during the 2019 third quarter. In 2020, John’s third quarter showed revenue of $700,000. John meets the “25 percent or greater loss in revenue” test.

For the business that did not operate during all of 2019, alternate tests are available, such as comparing the fourth quarter of 2019 to the first, second, or third quarter of 2020.

All these calculations can get complicated if you don’t have a reliable Business And Tax Accountant by your side. Allow my CPA Firm In Maryland to help you figure it out.

How Much Can You Get?

The mechanics of the second-draw PPP loan amount follow the basic rules that apply to the original (first-draw) PPP loan, with some modifications such as the following:

  • The loans are capped at $2 million or less.
  • If you are not a hotel or restaurant, i.e., North American Industry Classification System (NAICS) code 72, you identify your average monthly payroll for either 2019 or the trailing 12 months, and then multiply it by 2.5 to find your loan amount.
  • If you are a hotel or restaurant, you multiply by 3.5.

Confused? Allow me to help. Sigma accountants are the best Tax Accountant in Columbia MD.

What Can You Use the Money For?

During a period of your choice, beginning eight weeks from the origination date of the loan and ending 24 weeks from the origination date, you must use 60 percent or more of the monies for defined and/or deemed payroll to achieve 100 percent forgiveness.

Example. Wendy obtains $100,000 in second-draw PPP monies. She spent the entire $100,000 during the nine weeks following the date she received the loan, and of that, $65,000 was for payroll. She spent the remaining $35,000 on other covered expenses. Wendy qualifies for 100 percent loan forgiveness.

Still not sure? As a qualified Small Business Accountant in Columbia MD, I help businesses, like yours manage your accounts and organize your books properly. Let me help you, contact sigma today.

Other Covered Expenses

To obtain 100 percent forgiveness, you must spend all the PPP money on covered expenses and at least 60 percent of that on defined and/or deemed payroll.

In addition to payroll, covered expenses include the following:

  • Rent
  • Interest on mortgage obligations
  • Utilities
  • Operations expenditures
  • Property damage
  • Supplier costs
  • Worker protection

Example. Janet obtains a $100,000 loan but uses only $48,000 (48 percent) for payroll. The PPP rules limit Janet’s total loan forgiveness to $80,000 ($48,000 ÷ 60 percent).

If you claim all the expenses, you will need help from a professional Tax Preparation consultant from Columbia MD. I’m a Tax Accountant that can help you.

Expenses Are Deductible

Before the recent stimulus, the IRS took the position that expenses paid with PPP loan monies that were forgiven were not tax-deductible. Some lawmakers disagreed, but the IRS held firm and told those lawmakers that if they didn’t like the IRS position, they should change the law. So they did.

Now, thanks to the new law, expenses paid with PPP loan monies that are forgiven are tax-deductible. An experienced Business And Tax Accountant can help you prepare your taxes appropriately and claim all the deductions applicable to your business.

Act Fast

If you qualify for the 2nd round of PPP money  and want the tax-free money from PPP Round 2, don’t procrastinate. When the allocated monies are gone, the funding is over. Claim the money today with the help of a Columbia Maryland CPA.

Takeaways

If you received an initial PPP loan, you can qualify for a second round (called a “second draw”) of PPP tax-free money.

To qualify for the second-draw PPP money, you must

  • have 300 or fewer employees;
  • have suffered a 25 percent or greater loss in revenue during at least one quarter of 2020
  • when compared to 2019; and have already used your original PPP money (or be planning to use it soon).

The mechanics of the second-draw PPP loan amount follow the rules that apply to the original (firstdraw) PPP loan, with some modifications. The overall limits work as follows:

  • The loans are capped at $2 million or less.
  • If you are not a hotel or restaurant (NAICS code 72), you identify your average monthly payroll for either 2019 or the trailing 12 months, and then multiply it by 2.5 to find your loan amount.
  • If you are a hotel or restaurant, you multiply by 3.5.

During a period of your choice, beginning eight weeks from the origination date of the loan and ending 24 weeks after the origination date, you must use 60 percent or more of the monies for defined payroll to achieve 100 percent forgiveness.

Expenses that can qualify for forgiveness include:

  • Payroll
  • Rent
  • Interest on mortgage obligations
  • Utilities
  • Operations expenditures
  • Property damage
  • Supplier costs
  • Worker protection

And finally, keep these three thoughts in mind:

  1. Act fast, because this money goes in a hurry.
  2. The incoming PPP loan monies are tax-free.
  3. Expenses paid with PPP loan monies that are forgiven are tax-deductible.

You will not find a better bargain. You will not find a better Small Business Accountant in Columbia MD either. We have only a few open spots. Act fast and get in touch with us now.

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New Stimulus Law Grants 8 Tax Breaks for 1040 Filers

New Stimulus Law Grants 8 Tax Breaks for 1040 Filers

As you doubtlessly know, Congress recently passed a massive new stimulus bill that was enacted into law on December 27, 2020. Most of the public’s attention has been focused on the bill’s authorization of additional stimulus checks and new PPP loans and other aid targeted to struggling businesses.

But Form 1040 American taxpayers who are not in business are struggling as well. The stimulus bill contains a hodgepodge of eight new or extended tax breaks intended to help Form 1040 taxpayers. Are you looking for a Columbia Maryland CPA to help you make sense of these tax breaks? Read on to get our take on these new laws.

None of these tax breaks are earthshaking by themselves, but together they add up to a nice tax present for COVID-19-weary Americans.

1. Enlarged Universal Charitable Contribution Tax Deduction

Ordinarily, charitable contributions are deductible only if you itemize your personal deductions on IRS Schedule A instead of taking the standard deduction.

In the past, about 30 percent of taxpayers itemized. Today, only about 10 percent itemize because the Tax Cuts and Jobs Act roughly doubled the standard deduction. Do you claim your deductions correctly? Our Accounting Firm In Columbia, MD can help you claim appropriate deductions.

Today the vast majority of individual taxpayers don’t get any tax benefit from charitable contributions. The Coronavirus Aid, Relief, and Economic Security (CARES) Act attempted to ameliorate this state of affairs and thereby help struggling charities that rely on donations. It added a new $300, universal, above-the-line charitable deduction for cash contributions by non-itemizers to tax-qualified charities during 2020. I am a professional Tax Accountant in Columbia MD that can help you claim this benefit.

Unfortunately, this deduction came with a marriage penalty: it was the same for single and joint filers.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extends this deduction to 2021 and eliminates the marriage penalty: the deduction is $600 for married non-itemizers who file jointly, but for 2021 only.

Interestingly, the new law also adds a special 50 percent penalty for taxpayers who cheat by taking this deduction without actually making the cash contributions they claim on their return. A Columbia Maryland CPA can help you prepare your tax statement appropriately, so you don’t get penalized.

2. Extension of CARES Act Elimination of AGI Limit on Charitable Contributions

Under regular tax rules, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to 60 percent of the taxpayer’s adjusted gross income (AGI). The CARES Act increased this deduction to 100 percent of AGI for cash deductions to qualified charities (not including donor-advised funds). But this increase was for 2020 only.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extends this 100 percent of AGI charitable deduction to 2021

3. Lengthened Payroll Tax Deferral Repayment Period

Back in August, President Trump signed an executive order allowing employers to defer withholding the employee portion of the Social Security tax due for September through December 2020. The deferred amount would then be withheld from the employees’ pay during January through April 2021.

The idea was to increase employee take-home pay during these months (the employee Social Security payroll tax is 6.2 percent of up to $137,700 in wages during 2020).

Compliance with the order was purely voluntary, and few private employers took advantage of the deferral. But the tax deferral was made mandatory for most federal and military employees.

The COVID-related Tax Relief Act of 2020 allows employees who had their Social Security taxes deferred to pay them back by December 31, 2021, instead of by April 30. Payments are to be made ratably during these months.

This will give these employees a bit more take-home pay during January through April, but a bit less for the remainder of the year.

Are you a business that needs help figuring this out? I’m a Small Business Accountant Columbia MD that can help you.

4. 7.5 Percent AGI Floor for Medical Expense Deduction Made Permanent

Medical expenses are deductible as a personal itemized deduction only if, and to the extent, they exceed a percentage of the taxpayer’s AGI.

For several years, this AGI floor has fluctuated between 10 percent and 7.5 percent of AGI. The rate is 7.5 percent of AGI for 2020, and before the new law, it was scheduled to go up to 10 percent for 2021and later.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 makes the 7.5 percent of AGI floor permanent.

This makes it a bit easier for taxpayers who itemize to deduct their medical expenses.

5. Flexible Spending Account Carryovers

Under regular tax rules, employees who have health flexible spending accounts (FSAs) may carry over a maximum of $550 of unused funds in the account to use the following year.

The Taxpayer Certainty and Disaster Tax Relief Act of 2020 allows employees to carry over any unused 2020 balances in their health FSAs to 2021. Moreover, any remaining balance at the end of 2021 may be carried over to 2022.

Note:  Employers are not required to allow such carryovers in their FSA plan; it’s purely voluntary for the employer. Are you an employer in need of a Small Business Accountant in Columbia MD to help you manage your books? Please get in touch today

6. Earned Income Tax Credit and Child Tax Credit

Two of the most important federal programs that benefit the working poor are the earned income tax credit (EITC) and the child tax credit (CTC). The EITC and the CTC are based on a taxpayer’s family size and earned income. The more earned income, the larger the credits, subject to maximum limits.

But due to the COVID-19 pandemic, the earned income of many low-income taxpayers declined dramatically during 2020. This would ordinarily result in a reduction in their EITC and CTC credits—up to an 80 percent decrease for some taxpayers.

For purposes of the EITC and the CTC only, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 permits taxpayers to substitute their earned income for 2019 if it is greater than their earned income for 2020.This will result in larger tax credits for these low-income taxpayers. Do you need help claiming EITC and CTC correctly? I’m a professional Tax Accountant in Maryland that can help you claim your deductions as per law.

7. Educator Expense Deduction Includes PPE

Teachers of kindergarten through grade 12 may take an above-the-line deduction of up to $250 for books, supplies, and other equipment they purchase with their own money for use in the classroom.

The COVID-related Tax Relief Act adds to this deduction expenses for personal protective equipment (PPE), disinfectant, and other supplies used to prevent the spread of COVID-19. Only PPE and supplies purchased after March 12, 2020, qualify. The deduction remains a maximum of $250.

Note that the educator expense deduction is not available for homeschoolers, including parents who are teaching their children at home during the pandemic. It’s only for professional educators who work at least 900 hours during the school year.

8. Goodbye, Tuition and Fees Deduction—Hello, Expanded Lifetime Learning Credit

The tax code contains a bewildering array of deductions and credits for higher education, including the American opportunity tax credit, the lifetime learning credit, and the tuition and fees deduction.

The tuition and fees deduction is being allowed to expire at the end of 2020.17 In its place, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 is making the lifetime learning credit available to more taxpayers by increasing the phase-out range for the credit.

The 2020 lifetime learning credit phase-out range is $59,000 to $69,000 for single filers, and $118,000 to $138,000 for joint filers. Beginning in 2021, the lifetime learning credit phase-out range will be $80,000 to $90,000 for single filers, and $160,000 to $180,000 for joint filers.18 This is the same as the American opportunity tax credit phase-out range.

The main purpose here seems to be to simplify the tax code by reducing the number of education-related tax benefits taxpayers have to deal with.

Also, the lifetime learning credit is better than the tuition and fees deduction because it’s a tax credit, not a deduction. Unlike a deduction, which only reduces your taxable income, a credit is a dollar-for-dollar reduction in tax.

The lifetime learning credit offers a credit of 20 percent of up to $10,000 in education expenses, for a maximum credit of $2,000.

The tuition and fees deduction allows you to deduct a maximum of $4,000 above the line ($2,000 if your AGI is over $65,000 if single, or over $130,000 for joint filers). Even if you were in the top bracket (37 percent), a $4,000 deduction would save only $1,480 in tax (but you can’t qualify for this deduction at all if your income is high enough to be in the 37 percent bracket).

These laws can feel a bit complicated to understand. Don’t miss out on deductions and credits, allow our Columbia Maryland CPA firm to help you. We’re specialists in Tax Preparation, Small Business Accounting, Dental Accounting and acting as CPA For Doctors in Maryland.

Key Takeaways

The new stimulus law contains eight new tax breaks that enable you as an individual taxpayer to do the following:

  1. Deduct cash contributions to charity if you don’t itemize.
  2. Deduct up to 100 percent of your AGI as a charitable deduction.
  3. Lengthen to one year the time you have to repay your employee 2020 Social Security taxes if you had them deferred.
  4. Deduct medical expenses that exceed 7.5 percent of your AGI in 2021.
  5. Carry over unused flexible savings account funds to next year.
  6. Use your 2019 income to qualify for the EITC and/or CTC if you’re a lower-income taxpayer.
  7. Deduct out-of-pocket expenses for PPE if you’re a teacher.
  8. Take advantage of the lifetime learning credit if you’re a higher-income taxpayer in 2021

Please feel free to contact our Accounting Firm In Maryland. We’re here to help you. Contact us today.

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New PPP Forgiveness Rules for Past, Current, and New PPP Money

Small businesses rejoice! Sigma accountants, Small Business Accountants in Columbia MD come bearing Good news.

The new Paycheck Protection Program (PPP) law enacted with the stimulus package adds dollars to your pockets if you have or had PPP money.

Before we go further, please note the PPP money comes to you in what appears to be a loan. We say “appears” because you typically pay back a loan. If you are a doctor or a medical practitioner that’s looking for help with accounting and taxation please allow Sigma Accountants, CPA For Doctors in Maryland, to help.

Done right, however, the PPP loan is 100 percent forgiven. The word “loan” makes some businesses leery of this arrangement. Don’t be. The PPP monetary arrangement is a true “have your cake and eat it too” deal but only if you have a professional and qualified Tax Accountant in Maryland to guide you.

And this remarkable deal applies to your past PPP loan, the PPP loan you have outstanding, and the PPP loan you are about to get if you have not had one before.  Allow our Accounting Firm in Columbia, MD to provide you  the details.

Loan Proceeds Are Not Taxable

The COVID-related Tax Relief Act of 2020 reiterates that your PPP loan forgiveness amount is not taxable income to you. Do you need help with Tax Preparation in Columbia MD? We’re here to assist.

Expenses Paid with Forgiven Loan Money Are Tax-Deductible

As you may remember, the IRS took the position that expenses paid with PPP loan forgiveness monies were not deductible.

Lawmakers disagreed but were unable to get the IRS to change its position. The IRS essentially told lawmakers, “If you want the expenses paid with a PPP loan to be deductible, change the law.”

And that’s precisely what lawmakers did. The COVID-related Tax Relief Act of 2020 states that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.”

In plain English, the expenses paid with monies from a forgiven PPP loan are now tax-deductible, and this change goes back to March 27, 2020, the date the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted.

A Columbia Maryland CPA can help you claim all the deductions and take the maximum benefit during the Tax Preparation season in Columbia MD. I’m a Small Business Accountant in Columbia MD that has helped many small businesses, individuals, medical practitioners and dentists get dental accounting services, tax preparation and bookkeeping services in Maryland.

Key Takeaways

The PPP loan that’s forgiven is not a loan. It’s tax-free money.

To have all or part of the loan forgiven, you had to spend the money on covered expenses. Under the new law, and retroactive to the inception of the original law, you can deduct the expenses that you pay with forgiven PPP monies.

The new law changes the treatment of EIDL advances that reduced the amount of your PPP loan forgiveness. First, for new loans, there is no reduction in forgiveness for the EIDL advance. Second, for prior loans that were forgiven and that suffered a reduction in forgiveness, the SBA is working on instructions that will tell the lenders to refund the EIDL advance money.

(If you are due one of the upcoming refunds, set up a receivable for this money so you don’t forget about it. If you need help with it, feel free to get in touch with our Accounting Firm In Maryland)

The new law adds four new categories of expenses that qualify as covered expenses for forgiveness:

  1. Operating expenditures
  2. Property damage costs
  3. Supplier costs
  4. Worker protection expenditures

But remember that to achieve 100 percent forgiveness, you must spend at least 60 percent of the loan on covered payroll costs. With 24 weeks at your disposal, you likely can spend the entire loan on payroll and not consider the other categories at all.

There’s much more to this, of course. If you would like a Tax Accountant’s help for your PPP loan or simply wish like to talk about other accounting and bookkeeping needs, please set up an appointment with a Business And Tax Accountant at: https://sigmataxes.acuityscheduling.com/schedule.php

Why Work With A Professional Accounting Firm In Columbia, MD?

There are many benefits of working with a skilled Small Business Accountant from Columbia MD. Some of the major ones are –

  1. Reliable and Dependable Service
  2. Skillful Mentorship
  3. Customized And Personalized Offerings
  4. Tax Saving
  5. 24×7 Availability Of Records And Documents

Sigma is the best CPA For Doctors in Maryland as well as small businesses in Columbia,MD. Learn more about Sigma Accountant and what sets us apart. Book your free consultation now

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If the SBA Made Loan Payments on Your Behalf, Are You Taxed?

Are you one of the millions of businesses that have an outstanding non-disaster Small Business Administration (SBA) loan? These include:

  • 7(a) loans: general small business loans of up to $5 million,
  • 504 loans: loans of up to $5.5 million to provide financing for major fixed assets such as equipment or real estate, and
  • microloans: short-term loans of up to $50,000 for small businesses.

If so, you have already benefited, or soon will benefit, from a little-known provision included in the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Congress appropriated $17 billion so that the SBA could provide a temporary loan payment subsidy to businesses with these non-disaster SBA loans. Under this provision, the SBA automatically makes six monthly loan payments on behalf of borrowers. There is no need to file an application.

Are the SBA loan subsidies taxable income to you?

Unfortunately, the CARES Act is silent on this subject and the IRS has yet to issue any guidance on this particular loan subsidy program. In the past, the IRS advised that similar loan payments were includible in income by the taxpayer-borrower.

It’s unclear whether the IRS will follow this prior guidance.

The IRS could instead conclude that these loan subsidies are not taxable under the general welfare exclusion. The general welfare exclusion has often been used to exempt from tax SBA disaster payments made to individual taxpayers. The exclusion ordinarily does not apply to payments to business. But the IRS could make an exception due to the extraordinary nature of the COVID-19 pandemic.

It’s also possible that Congress will act to make the SBA loan payments tax-free. This could be done in a future stimulus bill.

Right now, the prudent course is to assume that the SBA loan subsidies are taxable income and plan accordingly.

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2020 Last-Minute 20% qualified business income deduction for dental and medical practices

Remember to consider your Section 199A deduction in your year-end tax planning.

If you don’t, you could end up with a big fat $0 for your deduction amount. We’ll review three year-end moves that (a) reduce your income taxes and (b) boost your Section 199A deduction at the same time.

First Things First

If your taxable income is above $163,300 (or $326,600 on a joint return), then your type of business, wages paid, and property can reduce and/or eliminate your Section 199A tax deduction.

If your deduction amount is less than 20 percent of your qualified business income (QBI), then consider using one or more of the strategies described below to increase your Section 199A deduction.

Strategy 1: Harvest Capital Losses

Capital gains add to your taxable income, which is the income that

  • determines your eligibility for the Section 199A tax deduction,
  • sets the upper limit (ceiling) on the amount of your Section 199A tax deduction, and
  • establishes when you need wages and or property to obtain your maximum deductions.

If the capital gains are hurting your Section 199A deduction, you have time before the end of the year to harvest capital losses to offset those harmful gains.

Strategy 2: Make Charitable Contributions

Since the Section 199A deduction uses taxable income for its thresholds, you can use itemized deductions to reduce and/or eliminate threshold problems and increase your Section 199A deduction.

Charitable contribution deductions are the easiest way to increase your itemized deductions before the end of the year (assuming you already itemize).

Strategy 3: Buy Business Assets

Thanks to 100 percent bonus depreciation and Section 179 expensing, you can write off the entire cost of most assets you buy and place in service before December 31, 2020.

This can help your Section 199A deduction in two ways:

  1. The big asset purchase and write-off can reduce your taxable income and increase your Section 199A deduction when it can get your taxable income under the threshold.
  2. The big asset purchase and write-off can contribute to an increased Section 199A deduction if your Section 199A deduction currently uses the calculation that includes the 2.5 percent of unadjusted basis in your business’s qualified property. In this scenario, your asset purchases increase your qualified property, which in turn increases the deduction you already depend on.

Takeaways

If your taxable income is over $163,300 (or $326,600 on a joint return), you could face a reduced or eliminated Section 199A deduction.

In such cases, consider using one or more of the three strategies described in this article to reduce your taxable income and increase your Section 199A deduction. The three strategies are:

  • Harvest capital losses if you have capital gain income that’s causing the trouble.
  • Make charitable contributions to increase your itemized deductions and reduce your taxable income—and consider donating appreciated long-term-gain stock to come out even better.
  • Buy and place in service before midnight on December 31, 2020, business assets that you can expense 100 percent to lower your taxable income. (This also lowers your QBI, but if you need it to gain the Section 199 deduction, it’s a good strategy..)
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5 Things to Know About Employing Your Spouse in your Medical Practice

If you own your own business and operate as a proprietorship or partnership (wherein your spouse is not a partner), one of the smartest tax moves you can make is hiring your spouse to work as your employee.

But the tax savings may be a mirage if you don’t pay your spouse the right way. And the arrangement is subject to attack by the IRS if your spouse is not a bona fide employee.

Here are 5 things you should know before you hire your spouse that will maximize your savings and minimize the audit risk.

1. Pay benefits, not wages. The way to save on taxes is to pay your spouse with tax-free employee benefits, not taxable wages. Benefits such as health insurance are fully deductible by you as a business expense, but not taxable income for your spouse.

Also, if you pay a spouse only with tax-free fringe benefits, you need not pay payroll taxes, file employment tax returns, or file a W-2 for your spouse.

2. Establish a medical reimbursement arrangement. The most valuable fringe benefit you can provide your spouse-employee is reimbursement for health insurance and uninsured medical expenses. You can accomplish this through a 105-HRA plan if your spouse is your sole employee, or an Individual Coverage Health Reimbursement Account (ICHRA) if you have multiple employees.

3. Provide benefits in addition to health coverage.There are many other tax-free fringe benefits you can provide your spouse in addition to health insurance, including education related to your business, up to $50,000 of life insurance, and de minimis fringes such as gifts.

4. Treat your spouse as a bona fide employee. For your arrangement to withstand IRS scrutiny, you must be able to prove that your spouse is your bona fide employee. You’ll have no problem if:

  • you are the sole owner of your business,
  • your spouse does real work under your direction and control and keeps a timesheet,
  • you regularly pay your spouse’s medical and other reimbursable expenses from your separate business checking account, and
  • your spouse’s compensation is reasonable for the work performed.

5. Beware of Certain Tax-Free Benefits. Section 127 education plan. The law prohibits Section 127 benefits to your spouse and dependents under the 5 percent ownership test.

Transportation benefits. If you and your spouse work in an outside office, you can provide him or her tax-free transportation benefits—just as you can for any rank and file employee. For 2020, you may pay up to $270 per month for parking near your business premises or for transit passes.

But as a result of the Tax Cuts and Jobs Act, the tax-free transportation benefits to your employees are not deductible by you, the employer.

Because we are talking about your spouse as an employee, the transportation fringe benefit gives no net benefit to you and your spouse (it’s a wash).

Takeaways

Hiring your spouse can result in substantial tax savings, but only if you pay your spouse solely, or mainly, with tax free employee fringe benefits instead of taxable wages. The IRS doesn’t require you to pay your spouse any W-2 wages.

The most valuable fringe benefit you can provide your spouse-employee is reimbursement for health insurance and uninsured medical expenses. You can accomplish this through a 105-HRA plan if your spouse is your sole employee, or through an ICHRA if you have multiple employees.

Tax-free employee fringe benefits are not limited to health benefits—for example, you can provide certain education, life insurance, and working condition fringe benefits.

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7 Last Minute Business Deductions

The purpose of this blog is to get the IRS to owe you money.

Of course, the IRS is not likely to cut you a check for this money (although in the right circumstances, that will happen), but you’ll realize the cash when you pay less in taxes.

Here are seven powerful business tax deduction strategies that you can easily understand and implement before the end of 2020.

1. Prepay Expenses Using the IRS Safe Harbor

1. Prepay Expenses Using the IRS Safe Harbor

You just have to thank the IRS for its tax-deduction safe harbors.

IRS regulations contain a safe-harbor rule that allows cash-basis taxpayers to prepay and deduct qualifying expenses up to 12 months in advance without challenge, adjustment, or change by the IRS.

Under this safe harbor, your 2020 prepayments cannot go into 2022. This makes sense, because you can prepay only 12 months of qualifying expenses under the safe-harbor rule.

For a cash-basis taxpayer, qualifying expenses include lease payments on business vehicles, rent payments on offices and machinery, and business and malpractice insurance premiums.

Example. You pay $3,000 a month in rent and would like a $36,000 deduction this year. So on Thursday, December 31, 2020, you mail a rent check for $36,000 to cover all of your 2021 rent. Your landlord does not receive the payment in the mail until Tuesday, January 5, 2021. Here are the results:

  • You deduct $36,000 in 2020 (the year you paid the money).
  • The landlord reports taxable income of $36,000 in 2021 (the year he received the money).

You get what you want—the deduction this year.

The landlord gets what he wants—next year’s entire rent in advance, eliminating any collection problems while keeping the rent taxable in the year he expects it to be taxable.

Don’t surprise your landlord: if he had received the $36,000 of rent paid in advance in 2020, he would have had to pay taxes on the rent money in tax year 2020.

2. Stop Billing Customers, Clients, and Patients

Here is one rock-solid, time-tested, easy strategy to reduce your taxable income for this year: stop billing your customers, clients, and patients until after December 31, 2020. (We assume here that you or your corporation is on a cash basis and operates on the calendar year.)

Customers, clients, patients, and insurance companies generally don’t pay until billed. Not billing customers and patients is a time-tested tax-planning strategy that business owners have used successfully for years.

Example. Jim Schafback, a dentist, usually bills his patients and the insurance companies at the end of each week; however, in December, he sends no bills. Instead, he gathers up those bills and mails them the first week of January. Presto! He just postponed paying taxes on his December 2020 income by moving that income to 2021.

With bonus depreciation now at 100 percent along with increased limits for Section 179 expensing, buy your equipment or machinery and place it in service before December 31, and get a deduction for 100 percent of the cost in 2020.

Qualifying bonus depreciation and Section 179 purchases include new and used personal property such as machinery, equipment, computers, desks, chairs, and other furniture (and certain qualifying vehicles).

4. Use Your Credit Cards

If you are a single-member LLC or sole proprietor filing Schedule C for your business, the day you charge a purchase to your business or personal credit card is the day you deduct the expense. Therefore, as a Schedule C taxpayer, you should consider using your credit card for last-minute purchases of office supplies and other business necessities.

If you operate your business as a corporation, and if the corporation has a credit card in the corporate name, the same rule applies: the date of charge is the date of deduction for the corporation.

But if you operate your business as a corporation and you are the personal owner of the credit card, the corporation must reimburse you if you want the corporation to realize the tax deduction, and that happens on the date of reimbursement. Thus, submit your expense report and have your corporation make its reimbursements to you before midnight on December 31.

5. Don’t Assume You Are Taking Too Many Deductions

If your business deductions exceed your business income, you have a tax loss for the year. With a few modifications to the loss, tax law calls this a “net operating loss,” or NOL.

If you are just starting your business, you could very possibly have an NOL. You could have a loss year even with an ongoing, successful business.

You used to be able to carry back your NOL two years and get immediate tax refunds from prior years; however, the Tax Cuts and Jobs Act (TCJA) eliminated this provision. Now, you can only carry your NOL forward, and it can only offset up to 80 percent of your taxable income in any one future year.

What does this all mean? You should never stop documenting your deductions, and you should always claim all your rightful deductions. We have spoken with far too many business owners, especially new owners, who don’t claim all their deductions when those deductions would produce a tax loss.

6. Thank COVID-19

Let’s be real: there’s little to be grateful for with COVID-19, with one of the several exceptions being the potential opportunities to turn NOLs into cash for your business.

Two NOL opportunities come from the Coronavirus Aid, Relief, and Economic Security (CARES) Act:

  1. The CARES Act allows NOLs arising in tax years beginning in 2018, 2019, and 2020 to be carried back five years for refunds against prior taxes.
  2. The CARES Act allows application of 100 percent of the NOL to the carryback years.

Before the CARES Act, you could not carry back your 2018, 2019, or 2020 losses, and your NOL could offset only up to 80 percent of taxable income before your Section 199A deduction.

7. Deal with Your Qualified Improvement Property (QIP)

In the CARES Act, Congress finally fixed the qualified improvement property (QIP) error that it made in the TCJA.

QIP is any improvement made by the taxpayer to the interior portion of a building that is non-residential real property (think office buildings, retail stores, and shopping centers) if you place the improvement in service after the date you place the building in service.

If you have such property on an already filed 2018 or 2019 return, it’s on that return as 39-year property. You now have to change it to 15-year property, eligible for both bonus depreciation and Section 179 expensing.

TAKEAWAYS

When it comes to your taxes, business deductions are king. The more business deductions you can claim, the better. The more business deductions you claim, the less you pay in regular taxes.

Yes, paying less in taxes is good.

Here are the seven last-minute tax deduction strategies we covered in this article:

  1. Prepaying your 2020 expenses right now reduces your taxes this year, without question. While it’s true you kicked the can down the road some, perhaps you have an offset with a big deduction planned for next year. And even if you don’t have such a plan at the moment, you have plenty of time to create one or to put additional big deductions in place for 2021.
  2. The easiest year-end strategy of all is simply to stop billing your customers, clients, and patients. Once again, this kicks the can down the road some and makes your 2021 tax planning more important.
  3. With 100 percent bonus depreciation and increased Section 179 expensing in 2020, you can make significant purchases of equipment, machinery, and furniture and write off 100 percent of the value. Make sure you place the assets in service on or before December 31, 2020, to get the deduction this year.
  4. Charges to your credit cards can create deductions on the day of the charge. This is absolutely true if you are a sole proprietor or if you operate as a corporation and the credit card is in the name of the corporation. But if you operate as a corporation and the credit card is in your personal name, your corporation needs to reimburse you before December 31 to create the 2020 deduction at the corporate level.
  5. Make sure to claim all your legitimate deductions. Don’t think you have too many, and don’t try to avoid deductions that you think could be a red flag. First, it’s unlikely you could have enough deductions to create a red flag. Second, no one knows what those red flags are. Third, if the deduction is legitimate, it doesn’t matter if the IRS audits it—you’ll win.
  6. If your deductions exceed your income, you will have a loss for the year and that loss can create an NOL. The good news here is that the NOL can give your business a cash infusion from the taxes you paid five years ago.
  7. If you placed QIP in service in 2018 or 2019, you have some work to do because that QIP is no longer 39-year property; it is 15-year property and requires a 100 percent bonus depreciation deduction if you don’t elect out of bonus depreciation

Sigma Accountant’s blog is intended for educational purposes and provides general information about tax accounting, business related topics. It is not intended to provide professional advice. By using this blog site, you understand that there is no CPA/client relationship between you and Sigma Accountants or its employees. The blog and website, including all contents posted by the author(s) as well as comments posted by visitors, should not be used as a substitute for competent counsel from a qualified advisor.

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