Are you ready for some Mid-year tax planning? It’s important to have your taxes in mind at all parts of the year, but the mid-point is a great time to evaluate everything and see how you’re doing. Mid-year tax planning is a great way to make sure you are in compliance and will help save you money. Keep reading to learn more about what you can do mid-year to make tax time simpler.
1. Reassess 3rd Quarter Estimated Taxes
Although the due date for the 1st and 2nd quarter estimated tax payments was pushed to July 15 earlier this year, the IRS has yet to mention any extensions for 3rd quarter estimated tax payments. If your business has been significantly affected by COVID, it is likely that any estimated tax calculations from earlier in the year have changed. Reconnect with your tax accountant to assess whether an updated tax estimate for 2020 makes sense for you and your business.
2. Keep or Rehire Workers
Mid-year tax planning is a great time to consider your employees. If you did not seek a small business loan, you may be eligible for the Employee Retention Credit on your 2020 tax return equal to 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before January 1, 2021, are eligible for the credit. Wages include cash payments and a portion of employer-provided health care.
To qualify for the credit, you must meet one of these requirements:
- Your business was fully or partially suspended by government order due to COVID during the calendar quarter.
- Your business’s gross receipts were below 50% of the comparable quarter in 2019. As soon as your gross receipts go above 80% of a comparable quarter in 2019, you no longer qualify after the end of the quarter.
If you qualify for the credit, you can immediately reduce your deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. If your employment tax deposits are not sufficient to cover the credit, you may submit Form 7200 Advance Payment of Employer Credits Due to COVID-19 to receive an advance payment from the IRS.
3. Delay Paying Payroll Taxes
Businesses can also postpone paying part of their payroll tax obligations for two years! Under the CARES Act, your business can defer the employer portion of the Social Security tax for the period between March 27, 2020, and December 31, 2020.
Under this provision, a business may pay 50% of the required Social Security tax by the end of 2021, and the remaining 50% by the end of 2022. Similarly, self-employed individuals can defer 50% of the part of their self-employment tax by paying 25% of the amount due by the end of 2021, and the remaining 25% by the end of 2022.
4. Take Advantage of Bonus Depreciation on QIP
If you have had to reconfigure your place of business to comply with COVID-19 safety guidelines, these investments may be considered real estate qualified improvement property that is now eligible for a 15-year cost recovery period instead of a 39-year cost recovery period.
QIP is generally defined as an improvement to the interior of a nonresidential building that’s placed in service after the building was first placed in service. However, this does not include:
- The enlargement of the building,
- Any elevator or escalator, or
- The building’s internal structural framework
If your business will be unprofitable in 2020 due to COVID, 100% first-year bonus depreciation may create a net operating loss, and it may be more beneficial to depreciate QIP over 15 years, especially if you foresee your income and tax rate being higher in future years.
5. File an Amended Return
In addition to the changes around QIP, the CARES Act provided other provisions that can provide retroactive tax benefits for small business owners. These provisions could make it worthwhile to file an amended return for 2018 or 2019.
The CARES Act provides a five-year carryback for NOLs incurred in 2018, 2019, or 2020. It also suspends the 80%-of-business-income limit on NOLs until 2021.
If you found value out of this blog post and/or would like assistance in figuring your mid-year tax check-up for your Tucson business, please contact us. We’d be happy to help!