As you enter the final stretch of the year, it’s time to figure out how to limit your business’s tax liability for 2019. Make sure your year-end tax planning is optimized to take advantage of the numerous opportunities the tax code offers.
1. Take advantage of big retirement plan deductions
Business owners can realize significant tax breaks by establishing a qualified retirement plan. The rules and requirements for retirement plans are complex and choosing the right option can be daunting, so be sure to get advice on the best retirement plan option for your circumstances.
2. Buy equipment or vehicles before year-end
If you’re planning on purchasing equipment sometime soon, consider moving this to before the end of the year to take advantage of the 100% first-year bonus depreciation. For qualified new or used property purchased and placed in service by December 31, your business might be able to write off the entire cost for 2019. The rules can be somewhat complex so again we recommend getting specialist advice on how the 100% bonus depreciation might apply in your circumstances.
3. Take advantage of the enhanced Section 179 deduction
The Section 179 deduction for qualifying property placed in service in 2019 is $1.02 million ( double the allowable deduction prior to the Tax Cuts and Jobs Act (TCJA)). The deduction can be complicated and is phased out for purchase amounts over $2.55 million.
4. Accelerate or delay business income or expenses to control tax liability
This is a time-honored tax strategy that allows you to micromanage your year-end taxable business income to minimize taxes both this year and next. If you expect your income next year to be lower than your current year's income, consider deferring income until the next year. If your expenses are accelerating, it may be beneficial to move some forward so they are on your books for this year.
5. Maximize the qualified business income deduction
Under the TCJA, owners of qualified pass-through entities including sole proprietorships, partnerships, LLCs, and S-corporations can deduct up to 20% of their Qualified Business Income (QBI). Be aware that the rules and restrictions for the pass-through deduction can be complicated. The deduction may be phased out at higher income levels and may be partially available for certain types of service businesses.
6. Get a 100% gain exclusion on the sale of qualified small business stock
If you own a Qualified Small Business Corporation (QSBC) you may be eligible for a 100% gain exclusion on the sale of stock acquired after September 27, 2010, which you have held for more than five years. Eligibility conditions do apply so be sure to get expert advice if you would like to pursue this exclusion.
Need more help?
With proper planning, any of these year-end tax strategies could substantially reduce your business tax liability. But you need to act now because your options become more limited as year-end approaches. Contact a Glass Jacobson tax CPA for more information, or to develop an optimized, tailored year-end tax strategy for your business.
Related Article: 7 Year-End Tax Strategies for Individuals