As the year is coming to a close, it is time to think about taxes. As a Business Owner, you put blood, sweat and tears into your business every day. Now is the time to understand your unique tax situation and how to minimize your tax bill.
Business Opportunities & Issues
- Invest in equipment. Need to place in service these assets by December 31. A business can write it off under tax code sec 179 up to $1,050,000. Wisconsin does not allow bonus depreciation but does follow Federal Sec 179 limits.
- Invest in a company vehicle. If you use your vehicle more than 50% for business consider buying one in the business. Depreciation is $18,100 for 2020, $16,100 for year 2, $9,700 for year 3 and $5,760 for year 4 and thereafter. Note that the personal portion of a business vehicle is added to your taxable wages.
- Establish or expand a retirement plan. For those just starting you may be able to claim a tax credit for setup costs of SEP, SIMPLE IRA or qualified plan. Consider making a discretionary profit-sharing contribution. To be tax deductible the contribution must be made no later that the tax return file date.
- Maximize the new deduction for pass-through income. You could avoid paying taxes on 20% of your business income. The calculation is complex and can be an all or nothing option – so plan ahead. For those with service businesses and those with high taxable income and low wages, there are ways to increase this deduction.
- Review the COVID funding you received this year to determine what is taxable. The Paycheck Protection Program loan forgiveness isn’t taxable. The Employee Retention (ERC) credit reduces your taxable wages. As a result, the ERC is taxable income. WI grants are not taxable at the WI level, but are at the Federal level.
- Electing to pay WI taxes at the business level. We now have an option for S corporations to pay the WI taxes like a C corporation. The rate is a bit higher, however the WI taxes paid will reduce the Federal taxable income.
Claim All Your Expenses and Tax Credits
- Vehicle expenses. You can choose between deducting the business portion of the actual costs or deduct 56 cents per business mile. A written mileage log of business and personal miles is required to take the deduction.
- Restaurant Meals are 100% deductible in 2021 & 2022. In an attempt to encourage business owners to support restaurants, meals paid to a restaurant are 100% tax deductible this year.
- Office in the home. If you work out of your home in a space used exclusively for business you can write off a prorated amount of your home costs. The deduction is limited to the taxable income, though costs can be carried forward.
For small business owners it is critical to consider your personal and business circumstances before implementing any ideas. If you have any concerns or want to reduce your tax surprise, call our office 920-351-4842 and set up a tax planning meeting.
Mary Guldan-Lindstrom, CPA