Tax Day has come and gone, but the coronavirus pandemic has pushed all filing and payment deadlines to July 15, 2020. While some may be overwhelmed at the thought of making multiple tax payments on one day, the delay provides an opportunity to reduce your taxes before they are due. Now is the perfect time to put money in your pocket.
Set up a business entity
If you haven’t set up a legal entity for your business, now is the time. Doing this opens the door to significant tax savings and will set you up for success. The process varies from state to state, but on average it takes four to six weeks. In addition, be mindful of the type of entity you choose, because it’s the key to paying less in taxes. Your tax advisor will be able to best determine if you should be taxed as self-employed, an “S” Corp, “C” Corp or partnership.
Deductions are your friend
Tax deductions sometimes get a bad reputation because it’s believed that certain deductions raise a red flag to the IRS. The reality is that when done properly, deductions give you an immediate tax advantage, even more so when you own a business. From deducting your home office to claiming the cost of renting an office space, there are plenty of opportunities to maximize. The 20 percent pass-through deduction for small businesses implemented in the 2017 Tax Cut and Jobs Act is one that is frequently missed since a relatively new opportunity. Connect with your CPA as soon as possible to determine what deductions you qualify for and can maximize now.
With the right education and mindset, you’ll learn that tax laws are actually tax incentives for business owners. It’s easy to take advantage of the opportunities when you understand how the laws can work in your favor. Incentives are something to be reviewed every year at tax time, since eligibility for certain credits changes frequently. Moving forward, take the time to plan your business around these incentives to continue to reduce your taxes and grow your wealth every year.
CARES Act Tax Relief
There are several important tax provisions in the CARES Act for entrepreneurs. Every entrepreneur should look at their 2018 and 2019 tax returns to see if they have a net operating loss that they could carry back for a refund. In addition, entrepreneurs who rented an office space in the past few years should look at amending their returns to take bonus depreciation on their leasehold improvements. There are other incentives abound in this new law, so be sure to review them with your CPA.
Anyone can take advantage of tax incentives provided by the government, but you must legally change the facts to receive the corresponding benefits. Meet with your tax preparer as soon as possible to review ways to permanently lower your taxes before the July 15, 2020, deadline. By creating significant savings, you’re setting yourself up to build long-term wealth.