Small Businesses: Looking to cut your 2019 taxes? It’s not too late

Don’t get too distracted by the year-end rush because there are critical steps that can reduce your 2019 tax liability if you act quickly. These important strategies can be an essential part of your tax plan.

Buying assets. Thinking about upgrades to your business? If those upgrades include purchasing vehicles, office equipment, or other heavy equipment, don’t miss out on this opportunity. If that equipment is purchased and in use by December 31, 100% of the cost can be deducted as bonus depreciation.

Are you looking to improve your physical facilities? Sec. 179 immediate expensing will cover many of the QIP (qualified improvement property) changes that you make. QIP – which are generally interior improvements to business properties – now includes improvements and repairs such as roofs, fire protection systems, HVAC, and security and alarm systems that have been placed in service after the building was placed in service. 

Sec. 179 deduction can be as high as $1.02 million for QIP and other qualified assets and equipment that are placed in service before January 1. However, the deductions cannot exceed the amount of taxable income from business activity. Once you place in service more than $2.55 million in qualifying property, the deductions through Sec. 179 begin to phase out on a dollar-for-dollar basis. Additional limitations may also apply.

Making the most of retirement plans. If you don’t already have a retirement plan, it’s not too late. There is still time to put retirement programs in place such as a SEP IRA, 401(k), or profit-sharing plans. It is important to note the deadline for setting up a SIMPLE IRA for the 2019 tax year was October 1, UNLESS your business started after that date. Additionally, if circumstances that affect retirement have changed significantly, such as your number of employees, you also should consider starting a new plan before January 1.

Although retirement plans generally must be started before year-end, the bonus news is that you can usually deduct any contributions for yourself and your employees until the due date of your tax return. It is also possible that you might qualify for a tax credit to offset the costs of starting a retirement plan.

Timing your deductions and income to your favor. If your business operates on a cash basis, and you expect to be taxed at the same or lower rate next year, you have some additional options. It is possible to significantly affect the amount of taxable income by both accelerating your deductions into 2019 and then deferring income into 2020.

As an example, it is possible to put recurring expenses usually paid in the first few months of the year on your credit card before January 1. Paying those expenses early will allow you to claim the deduction for 2019 but defer payment on the credit card bill until 2020. It may also be possible to prepay some expenses, such as rent or insurance, for 2020 but claim those costs in 2019.

As for income and your taxes, simply wait until close to the end of the year to send out invoices to reliable customers with secure payment histories. Accrual-basis businesses can also take a similar approach, which includes holding off on the delivery of goods and services until 2020.

Don’t go it alone

Remember that taxes and tax laws are complicated, and some of these options could hurt other factors affecting your tax liability, such as the qualified business income deduction. Be sure to contact us at JLK Rosenberger to make the most of your tax planning opportunities. For additional information, call us at 949-860-9891 or click here to contact us. We look forward to speaking with you soon.