We all thought 2020 would be cool. There would be endless puns about perfect vision. Barbara Walters’ catchphrase would finally be true. But nothing could prepare us for what actually happened. And while it’s certainly not cool, most people are trying to make the best of 2020.
So in that spirit, here are some things to keep in mind as you close out the year.
Make Purchases For Your Business
Since your taxes are based on your net income, you can save yourself money in the Spring by making purchases now. This includes business tools, equipment, and, of course, software like Fullbay.
Don’t forget the Section 179 deduction which allows you to deduct up to the entire cost of a vehicle that is over 6,000 lbs GVWR. This includes anything from a Chevy Silverado, Ford F-150 and larger, Ram 1500 and up, Toyota Tundra, and even the Tesla Model X.
Do a Year-End Inventory Count
Ideally, you’re counting inventory along the way, but it’s always a good practice to do an end-of-year count. If inventory is lower than you expected, that’s never good because you probably didn’t charge for those parts. But there is a silver lining: you can likely expense the difference.
Maximize Retirement Contributions
You have until April 15th to make IRA contributions, but if you’re participating in a 401(k), December 31st is the cutoff. Slow and steady wins the race, and maximizing pre-tax dollars toward retirement is one step you don’t want to miss. This directly reduces your taxable income and increases the possibility of a refund come Spring.
Use Current Losses for Quick Refunds
Talk to your CPA about the possibility of using 2018-2020 losses to offset prior-year income. Under the CARES Act, these can be carried back up to five years. You can even strategically offset years that had higher tax rates.
And be sure to check whether any “qualified improvements” you made to your shop this year qualify for accelerated depreciation. You may be able to claim the entire cost of fixing up your shop in one tax year, and even apply it retroactively to past years.
COVID-19 Disaster Declaration
In response to COVID-19, President Trump declared a federal disaster area that encompasses all 50 states. That means you may be eligible for a refund for certain types of losses. This may include supplies, inventory, and closure of a shop location. There are specific requirements, so check with your CPA.
Keep in mind that these ideas are just a start. There is further economic recovery legislation in the works that will probably add to and enhance the list above. For more information and a deeper discussion, please plan to attend our December webinar on the subject.