As we finish up Q4 of an extremely unusual year, it is time to ensure your documents are organized and ready for tax preparation. We often advise our clients that tax preparation is a full-time, year-round endeavor in collecting and organizing records, receipts and other important documentation. The tax preparation professionals at Murray Moyer, PLLC want to share the following end-of-year tips to help reduce your tax liability next year and also save you a considerable amount of time.
Tax Prep Tip 1: Employee Credits
If your small business employs individuals of specific populations such as those receiving SSI or qualified veterans, you may be eligible for Work Opportunity tax credits. In North Carolina, the Commerce Department’s Division of Workforce Solutions administers WOTC and determines eligibility for the target groups. The factors that weigh in to determine the amount of the credit include the target group of the individual hired, the wages paid to that individual in the first year of employment, and the number of hours that individual worked. A business can receive from $1,200 to $9,600 for each eligible employee.
Tax Prep Tip 2: Inventory Property for Reporting
Any purchased furniture, equipment, vehicles, fixtures or other qualifying property should be reported as a Section 179 expense rather than depreciating these items over the course of several years. Most business owners would really prefer to write off the entire equipment purchase price in the year they buy it.Section 179 is what permits this. This has made a big difference for many companies. Also take note in 2020 that much of the equipment and supplies needed to conform to COVID-19 safety protocols can be deducted under Section 179.
Tax Prep Tip 3: Benefits of Adding E-Commerce
If your business could benefit from expanding into e-commerce, you can start a subsidiary or a website and write off up to $10,000 in startup expenses.
Tax Prep Tip 4: Leverage Your Retirement Fund
Make the maximum allowable contribution to your retirement fund so that you can deduct that from your taxes. The annual contribution limit for 2019, 2020, and 2021 is $6,000, or $7,000 if you are age 50 or older. Consider setting up SEP IRAs or other pension plans for your employees. Our tax advisors can provide you with more information on employee retirement benefits.
Tax Prep Tip 5: Utilize All Deductions
The main tip to keep in mind as your wrap up Q4 of 2020 is to know the deductions that apply to you and your business. The following categories are small business expenses that may be deducted:
- Payroll
- Professional services (attorney fees, CPA fees, tax preparation costs; tax software expenses)
- Office Supplies
- Client and Employee Entertainment
- Home Office Expenses
- Vehicle Expenses (for deliveries or work-related travel) *This does not include commuting.
Keeping receipts logged and organized will help your tax preparation service provider easily compile your deductions. Position yourself to take advantage of these incentives by year end so that you benefit when you file in 2021.
At Murray Moyer, PLLC our clients benefit from the knowledge and expertise of tax attorneys and CPAs to ensure tax preparation is done accurately and efficiently. Schedule a consultation with our team today to get started on the personalized tax advice and preparation you need.
Written by Michael Murray on December 9, 2020.