Smart Year-End Tax Planning Tactics For Businesses In 2020

Smart Year-End Tax Planning Tactics For Businesses In 2020

The pandemic has brought countless financial challenges for businesses, and things have changed for them on every front, including taxes. Even as the government has offered support through extended deadlines and breaks, you need to be extra careful about keeping things on track.

Year-end tax planning, in these circumstances, becomes more important than ever. Having the right strategy in place is vital to navigate the disruption and steer clear of any trouble with the IRS. Here are some tax-planning tactics that businesses can embrace as 2020 nears its end.

Examine your tax function

Right now, nothing matters more than staying one step ahead of your taxes. Many businesses are still holding on to the legacy systems and dedicating time and efforts to number-crunching and repetitive processes. These are unprecedented times, and your needs are different. You need to prevent inefficiencies and focus on things that matter so that the business does not miss out on deadlines or encounters audit and tax risks in the new normal. It is time to reassess your tax function and mitigate risks by taking a strategic approach.

Claim quick disaster loss refunds

The current tax rules, fortunately, enable businesses to claim certain disaster-related losses on the tax return for the prior year. Your business may be eligible for refunds, which can be of great help during a crisis. According to experts at Creative Tax Solutions, you should seek quick refunds for the loss occurring in 2020 with a 2019 amended return. The losses can include the ones arising due to a variety of circumstances, such as the closure of stores, offices, or plants or the loss of inventory or supplies. To qualify, you will have to validate that the loss is attributable to COVID-19.

Use current losses for refunds

Apart from claiming refunds for disaster-related losses, you can also look up to current losses for relief. The CARES Act has a provision that allows businesses to use their current losses against the past income for claiming immediate refunds. You can carry back the net operating losses (NOLs) in the tax years 2018 to 2020 for refunds against prior taxes. Accelerate deductions can help companies to benefit and obtain larger refunds in the pandemic year. A tentative refund claim can help you get a refund quickly, but you must file it by Dec. 31, 2020.

Align the timing of payroll tax deduction

Employers are allowed to defer the payment of their share of Social Security taxes under the CARES Act this year. The deferred amounts will be due in two halves, first by Dec. 31, 2021, and the other by Dec. 31, 2022. While this will give your company a liquidity benefit right now, there will be an impact on the deductions this year-end. Deferring the payment of payroll taxes means that you will be deferring the deduction as well. Paying early will allow your business to take the deduction in 2020. Considering these facts makes sense if you want to lower the tax bill this year.

Considering the current situation, you will need to see taxes from a different perspective. Taking the right measures early can help your business lower the tax burden and also stay on the right side of the law in the New Year.