What small businesses can do to decrease their tax bills

Like many accountants, Daniel Nickischer, a partner in the RKL Reading Office, gives his clients some basic advice. Keeping track of your taxes is a year-round task, and not just around the filing deadline.

The gentle reminder is meant to help keep things going and prevent any last minute supplements that could delay the process.

Daniel Nickischer

“My first advice is that we shouldn’t focus on that at the end of the year,” Nickischer said in a telephone interview. “It’s a year-round conversation with the client and the CPA. I see how many customers come into December and start reconciliation. You should do this monthly and have a scoreboard of how you are doing. That way you won’t go into shock. You need one to manage your business. “

With that in mind, Nickischer says small business owners should keep a few things in mind when preparing their taxes for 2021:

• For Paycheck Protection Loans, any loan made in 2021 is non-taxable income. “When a $ 50,000 loan is made, there should be no liability. PPP forgiveness is not taxable, ”says Nickischer.
• “Also in terms of the coronavirus pandemic, which many owners are not aware of, the tax credit for employee withholding is an income tax statement,” says Nickischer. “If you had an idle workforce during the pandemic, you should contact a CPA or payroll provider immediately.” The purpose of the ERTC is to encourage employers to keep workers on payroll, even if they are on the payroll during the covered period due to the impact of the coronavirus outbreak not working. You qualify as an employer if you have been prescribed a full or partial closure or if your gross income has fallen below 50% and below 80% (for 2021) in the same quarter of 2019 (for 2020). It is up to $ 5,000 per employee in 2020 and increases to $ 14,000 in 2021. Companies can receive a maximum of $ 21,000 if they employ their employees by September 30, 2021.
• One thing to review annually is the company’s tax structure. Is it a small business, single member LLC? It will depend on how fast the business grows, says Nickischer. “As you grow, you may have outgrown your tax structure,” he said. “It might make sense to change your entity.”
• Create a retirement plan with with-profits and / or a 401 (k). An employee pays no income tax for bringing in money. Instead, the employer will withhold the contribution from your paycheck before the money can be subject to income tax. “I’d rather pay for the future than pay the IRS.” Nickischer says. “It’s like a tax strategy to reduce taxable income.”
• Another tax strategy is fixed assets. If a company plans to purchase equipment in the New Year, it may want to postpone it before January 1st. “It’s a dollar-to-dollar deduction,” says Nickischer. “If you spend $ 10,000 on equipment, it subtracts $ 10,000.” But not just “buy it just to buy it”. It is a 100 percent bonus amortization until 2022, which will decrease from 2023 onwards before being completely abolished in 2026.
• The Tax Cuts and Jobs Act of 2017 changed the rules for net operating losses. If you had losses in 2018, ’19, and ’20, you can carry losses forward for five years. It was two years before. “You can recoup some of this income,” says Nickischer.
• Tax rates will rise in 2022, so another strategy is to accelerate income in 2021 if it increases in ’22. “A lot of small businesses are speeding up the expenses they can pay for,” says Nickischer. “On the flip side, an accrual business records income and expenses as they arise.” The IRS states that qualified small business taxpayers can choose either method, but they must adhere to which method they choose. The method chosen must also accurately reflect the business activity. “Might be a good fit to be on a cash basis,” Nickishcer said. “Is the acceleration of income at the end of the year a benefit for the future?”

What small businesses can do to decrease their tax bills