The end of the year is upon us and what a year it has been! We’ve all had to face unique challenges with some of us being far more impacted than others. Perhaps your bottom line stayed comparatively about the same as last year, maybe you were one of the lucky ones and you had a booming year, or maybe you were hit hard as a result of COVID-19 restrictions. Whatever your case may be, tax planning could play a crucial role for manufacturers this tax season. Whether your goal is to reduce income to minimize taxes or accelerate income to offset any net loss, the time to start thinking about tax planning opportunities is now.
Check out these 8 Tax Planning Tips:
Section 179 Expensing: The expensing limitation for fixed asset additions has been increased to $1.04 million and the phaseout is $2.59 million. Qualified Improvement Property is eligible for Section 179.
Bonus Depreciation: A 100% first-year deduction is allowed for qualified property acquired and placed in service during 2020. The CARES Act established that Qualified Improvement Property now qualifies for bonus depreciation. For more information, view our Biz Tip on Bonus Depreciation.
Qualified Business Income (QBI) Deduction: Qualified businesses can take advantage of this 20% deduction. Limitations apply. Learn more information on QBI.
Research & Development (R&D) Credits: Think you don’t qualify for R&D credits? Think again. Whether it is a process or a product, if it is new or improved, it could qualify. This credit equates to about 10% of eligible expenses. For more information, view our Biz Tip on R&D Tax Credits.
WI Manufacturing Credit: This credit has the capability of wiping out your state income tax. The business property must be assessed as manufacturing in order to qualify.
Accounting Method Change From TCJA: Is this the year to make a change? Certain small businesses with average annual gross receipts of $25 million or less are eligible to convert to the cash method of accounting. Depending on the state of your balance sheet, this change could either cause you to have income or additional deductions in the year of change. Other accounting method changes available for small businesses concern inventory valuation changes that could decrease your income. Learn more about the changes here.
Net Operating Loss (NOL) Carryback: With the passing of the CARES Act, businesses and individuals can now carryback NOLs from 2018, 2019, and 2020 to the prior five tax years. Note that any losses arising in 2021 must be carried forward to future years. To understand the modified rules, view our Biz Tip on NOLs and AMT.
Work Opportunity Tax Credit: If you hire individuals from a specified disadvantaged targeted group, you could be eligible for a credit worth 25-40% of their wages. Find more information on the tax credit extension.
We understand that this year has been hard for everyone. Let us help you develop the best tax strategy for your business during this uncertain time.