The year 2020 has been a rollercoaster ride – from the pandemic to the US presidential elections – so much has been going on. Thus, year-end tax planning is more important in 2020 than in any other year.
COVID-19 has impacted the financial sector drastically; numerous small businesses have shut down in the last few months, and the lockdown has increased the financial burden for many firms. Therefore, the Finalization of accounts is going to be great trouble for tax preparers this year.
Furthermore, the Tax Cuts and Jobs Act (TCJA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act has brought new rules and provisions for account finalization. Thus, if you are confused and stressed about tax preparation 2020, don’t be because CapActix has already completed their year-end tax planning so that we can help you better.
Essential Tips for Year-end Tax Planning 2020
The countdown for tax season 2020 has begun, so it’s time for tax preparers to get their action plan ready. For the financially struggling companies in the slowdown economy, it is very vital to think very hard while finalization of accounts. Some of the important tips that can help in account finalization are –
Time to Claim AMT Refunds
The year 2020 might be the right to claim your corporate alternative minimum tax (AMT). AMT allows companies to claim all their unused AMT credits for 2018, 2019, 2020, and 2021. The CARES Act has boosted the timeline and allowed companies to claim all remaining credits in 2018 or 2019. This change has facilitated corporations to file refunds in different ways. One of the fastest modes to claim a refund would be through Form 1139, but it needs to be filled before 31st December 2020.
Take Advantage of Bonus Depreciation
Thankfully, a technical issue related to the bonus depreciation has been fixed in the CARES Act. The bonus depreciation is a generous provision that facilitates businesses to deduct many types of business investments. This provision‘s functional area has been expanded, and numerous qualified improvement properties are included in it. Usually, qualified improvement property includes restaurants and retails, but it is much broader and applicable to any kind of improvement – interior or exterior of both the leased and owned properties. This is a golden deduction for businesses in the prevailing situation.
Keep your Records Straight
It is advisable by the IRS to keep all your financial records and documents with you – at least for the past three years. Your previous year tax documents will come in handy while accounts finalization. There are plenty of different tax documents that you should preserve, such as W-2 forms, pay stubs, home mortgage statements, last year tax return, 1099-G forms, credit bills, cancelled checks, and many more. If you have hired a professional tax preparation company to manage your taxes, they might already have your tax details, but if you have hired a new company – you need to share all details with them.
Adopt Automated Tax Preparation
Right now, things are highly uncertain – you never know when anyone from your tax preparation team will get sick, and you have to shut down your operations. Especially, the winter season is approaching in the majority of parts; thus, the second wave of a pandemic is expected to hit soon. That’s why if you don’t want to interrupt your tax work, you should automate your system.
Tax automation has already been used by many progressive companies, but in the present scenario, it is highly important to automate your tax preparation services. There are plenty of different tools and software available in the market that you can use to automate your tax preparation system.
Receive Charitable Tax Benefits
This year-end tax planning is mainly focused on using more and more tax benefits. The charitable tax benefits are the best window for companies to do something during the pandemic and gain some deductions. Some of the common charitable tax deductions that you can try are –
You can give appreciated investments to charity and avoid paying potential taxable capital gains. If you can avoid your capital gains using charitable deductions, it will be highly beneficial for you.
If you are planning to get a standard charitable cash deduction, you can give away cash for charity up to $300. Under the CARES Act, individuals and families are allowed to deduct 100% of cash gifts out of their adjusted gross income.
Giving Household Items
The household items giving for charity can also be deducted from the taxes. You have to itemize household goods to gain this benefit.
Share your IRA
If you are over 70.5 years, you can make charity from your IRA. If you are soon going to be over 72 years, you should wait until January 2021 to make charitable payment. By paying charity out of your IRA, you don’t have to pay income tax.
Make 529 College Savings Plans
If you are an Indiana state resident, you can gain Indiana state income tax credit by making contributions to a 529 savings account. You can gain credit up to 20% of the contribution, with the maximum credit up to $1000. The good thing is that you don’t have to be the owner of the account to gain credit.
Get your Disaster Loss Refund
This year, you should plan for the disaster loss refund also. Tax laws facilitate businesses to claim certain losses incurred due to disasters in a previous tax year. This is a quick relief for businesses that President Trump has declared for all 50 states, the District of Columbia, and five territories. It means all the different types of US businesses are covered under disaster loss refund.
Under this refund, businesses can claim any kind of loss incurred due to the pandemic. The primary losses covered under the provision includes disturbed supply chain, office closed, and other related losses. The CPAs and tax experts need to help their clients by getting disaster loss refunds in 2020.
It is always vital for tax professionals to prepare a year-end tax plan in advance. But, the present scenario has raised numerous unique challenges for taxpayers; thus, the tax preparers need to develop an effective plan soon. We have touched on a few year-end tax planning tips already, but there are plenty of other options to help your clients today. So, tax preparers, start your planning right now!
At CapActix, we have already prepared our year-end tax plan; contact us on email – [email protected] or can call on +201-778-0509 to know our plan.