Was your business profitable in 2020? Do you expect a large income tax bill? If so, this blog is for you!
We’ve got two things you can do—before the blessed end of 2020—which could save you some serious cash on current year business income taxes! While these are two different actions, they both happen to include the word bonus. And who doesn’t like a bonus? Especially during pandemic times like these.
Buy assets that qualify for bonus depreciation
Here’s how this works—tax depreciation involves deducting the cost of an asset over multiple years. However, the IRS allows bonus depreciation which currently lets you deduct all of it in the year you buy qualifying assets (and put them to use in your business).
You can currently deduct 100% of the cost of bonus-qualifying-assets in the year you buy and start using them. So what assets qualify?
- New or used equipment, computers, machines and furniture (that the IRS normally allows to be depreciated over 20 years or less).
- Most off-the-shelf computer software (that’s not obtained as part of a business purchase).
- Certain qualified improvement property (improvements to the interior of commercial buildings, also known as leasehold improvements).
- Certain vehicles and other assets (ask your tax pro for guidance on these).
Read more about qualifying assets on this IRS update.
Pay employee bonuses!
You heard that right! Happy employees are a vital part of the success of your business.
If your business is a cash-basis filer—if you’re not sure, ask your tax pro—then pay the bonuses before the end of the year.
- Decide on bonus amounts.
- Pay the bonus either:
- Before the end of the year – or –
- Commit to paying the bonuses by letting your employees know the amounts and timing – and – pay the bonuses by March 15, 2021 (if your tax year ends on December 31, 2020).
Keep in mind that due to payroll taxes, the cost of a bonus to your business is larger than the actual bonus amount. Your payroll provider should be able to help you with this.
So do your tax-deductible spending before the end of the year! More deductions mean less taxable income which means less income taxes. When thinking about the two options above, the approach is two-fold. First, spend in ways that add value to your business by making it more efficient, more productive and so on—some would call this ROI strategic spending. Second, make sure that spending is going to be deductible in 2020.
inDinero’s tax experts have a collective hundred years of experience doing just this for our clients. Talk to us today to find out if bonuses are right for your business—or like totally bogus.
Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. inDinero assumes no liability for actions taken in reliance upon the information contained herein.