COVID Funding Tips for Small Businesses
This is an important message if you have an entity with a December 31st year-end, which includes LLC taxed as a partnership single-member LLCs disregarded owned by an individual, S corporations, and S corporations.
Since the tax year-end is only a few weeks away, you must connect with your CPA/accountant to see if there are any last-minute tax planning strategies you should implement in December – not in January when the year is over and your chance to reduce your tax bill is gone.
Perhaps you haven’t done December tax planning in the past. That’s common because most business owners don’t pay for any tax planning and show up to the CPA’s office the following year when the taxes are due. This is the MOST expensive approach because you can’t make retroactive changes.
By the way, if you’re not already working with a CPA/accounting firm, we do have a good recommendation for you – but more on that in a minute.
For now, here are a few key end-of-year tax planning strategies you want to have in place:
- If you have an S corporation (or LLC taxed as an S corporation), did you have any payroll in 2020? If you only had distributions with no payroll, that would be an issue.
- Are your books current with year-to-date profit and loss? That’s important because if your business is profitable, there may be some end-of-year expenses you can use to lower your net profit and taxes owed for 2020. You can only do that if your profit and loss records are up to date.
- Have you properly documented all your deductions throughout the year as required by law?
- Even if you had no profits in 2020, will your books and accounting practices for the year be viewed by the IRS as a business or a hobby? They aggressively search for people trying to disguise personal hobby expenses as business losses on a “guilty until proven innocent” basis.
- If you’re outside the U.S., are you and your family adequately prepared for U.S. tax rates and tax treaties that apply to your country?
These are all important factors that can be addressed before the end of the year – with a potential for substantial tax savings. Are you working with a tax firm that’s fully supporting you in these areas? NOW is the time for an expert review of your business – it’s important to get these protections in place BEFORE the tax year is over! Plus, you’ll be in a better position for IRS compliance and tax savings going into 2021.
Take action NOW to make sure to capture every penny of tax savings you have coming your way before the end of the year.
Please accept my best wishes for a happy holiday season, a profitable finish for 2020, and a prosperous 2021.