2019 Year-End Tax Planning for Businesses

The end of the year often means more spending for business owners. Office parties, client gifts, and traditional holiday bonuses can add up and put the squeeze on your bottom line. But we have a few tax planning strategies that can help increase your cash flow just in time for the new year. 

Because the IRS continues to release new guidance on the Tax Cuts and Jobs Act of 2017, this information might be new to even the most savvy taxpayer. As always, your CPA can provide you with more detailed and personalized advice. 

Tax Planning Tips for Businesses

  • Make the most of bonus depreciation. This one is huge for business owners. As of 2018, Section 179 allows businesses to write-off the cost of any qualifying new or used property asset up to $1 million. (The built-in inflation adjustment actually makes this amount $1.02 million for 2019.)

So, did you buy any office equipment, machinery, computers, or software this calendar year? Do you have a few purchases left to make? Even heavy SUVs, pick-up, or vans may qualify if they are used for business purposes at least 50 percent of the time. (See depreciation table.)

Huddle with your tax advisor ASAP to map out your plan for this deduction and to see if you might benefit from a cost segregation study, which can yield significant tax savings if managed correctly. 

  • Plan for the qualified business income (QBI) deduction. It’s also known as the Section 199A deduction and more commonly as the 20 percent pass-through deduction for sole proprietorships, LLCs, or S corporations. If you qualify, you might pay taxes on only 80 percent of your QBI instead of the full 100 percent. As you can imagine, that’s a significant savings. 

However, it requires careful planning, especially since the IRS continues to put out clarifications on this part of the TCJA. Service-based businesses like accounting, law, engineering, and financial services firms face stricter requirements and income thresholds. 

  • Think about expanding benefits to your employees. This one is next on the list because it ties into the QBI deduction. Yes, it increases your business expenses, but you can reduce your taxable business income at the same time.  

How’s that? If you add or improve the fringe benefits offered to your employees, it increases W-2 wages, which may also increase your available deduction. So, your employees get access to things like retirement plans, health care options, health savings accounts (HSA), and specialized disability insurance, and you save money on taxes. A potential win-win. 

  • Defer income–if it makes sense. If you have a slew of invoices to send out near the end of the year, it might make sense to mail them on December 31st. Then, when you receive payment, it counts toward your 2020 taxable income rather than on 2019 taxes. 

Obviously, this is one of the easier ones to do, but you need to make sure you have adequate cash flow before implementing it. 

  • Invest in opportunity zones. If your business sells a property this year, you can offset capital gains tax with this new program. It requires that you invest at least 90 percent of your earnings from that sale into an approved, low-income area that is ripe for redevelopment. Contact your CPA to discuss the benefits of this strategy. 
  • Set up an appointment with your tax professionals. They can help you claim all of the available tax deductions and alert you to any incentives before time runs out. 

The tax team at Naden/Lean is ready to answer your questions about 2019 year-end tax planning and any other financial concerns. Contact us today.