Year-End Tax Saving Strategies for Business Owners

As the year draws to a close, it’s time to maximize your current year tax deductions and other tax planning opportunities. Here’s a brief checklist of moves you can make now to help reduce current or future tax exposure:

Pre-pay Business Expenses

You may be able to reduce your 2020 tax bill by pre-paying certain 2021 business expenses before year’s end. For example, you can renew subscriptions, pay ahead for advertising, business insurance premiums, rent, business licenses, and other items that don’t extend more than 12 months. Some other year-end moves that can save taxes include:

Maintenance

Repair broken equipment and physical plant items by the end of the year.

Invest

Buy business equipment and get it into service by year’s end. You can take first-year deductions on capital equipment purchases of up to $1 million. This includes vehicles and trucks over 6,000 pounds.

Maximize QBI Deductions

If you meet certain income limits, owners of S corporations, partnerships and sole proprietorships may deduct up to 20% of qualified business income (QBI). For tax year 2020, eligibility for the deduction begins to phase out at income levels of $163,300 for single filers and $326,600 for joint filers.*

Contribute to Retirement Accounts

Make matching contributions to employee 401(k)s.

Contribute to Health Savings Accounts (HSAs)

Employer contributions to employee HSAs, including your own, are deductible to the employer.

Deduct Losses

The CARES Act made it easier to take deductions for losses in 2018, 2019 and 2020, to help improve cash flow for struggling businesses. See your tax professional for details.

Give to Charity

Donated equipment, computers or inventory may provide a useful year-end tax deduction.

Book your appointment with your tax professional well before the end of the year, so you don’t have to scramble.

*Exceptions apply for certain service businesses.