If you’re running a small business, then taxes are likely among your biggest expenses. So although it’s important to be proactive and practice good tax-planning strategies throughout the year, you can still make some moves now to save your business money before 2021 ends. Here are eight.
1. Buy capital equipment
Accelerated depreciation rules allow you to buy machines, vehicles, computers, software, furniture and other types of capital equipment and, instead of having to depreciate these expenditures over time, you can immediately deduct up to $1,050,000 this year. And remember: You don’t even have to pay for this stuff right away. Even if you’re financing the acquisition, the rules allow you to take the deduction as long as the item is placed into service by year end.
2. Make charitable contributions
Thanks to prior COVID-19 stimulus bills, you can personally take a $300 deduction ($600 for those filing jointly) on your tax return over and above the standard deduction this year and your business can deduct as much as 25% of its income for charitable contributions. After 2021 the extra personal deduction goes away and the business deduction returns to 10% of your company’s income. This is not only a great way to save money on your taxes, but, if you’re active in a charity, it also can be a reminder to potential donors to give before this benefit disappears.
3. Clean up your balance sheet
Admit it: Those long overdue receivables probably aren’t going to be paid. And that “great deal” you made five years ago is still sitting in your warehouse collecting dust. Use these next two weeks to throw away old inventory and to remove those old, uncollectible receivables from your books. By disposing and then writing off these assets, you can take a tax deduction.
4. Max out your retirement contributions
Depending on how much your employees are contributing, you can put away as much as $58,000 in your 401(k) retirement plan this year. But make sure to talk to you benefits adviser to see how much you can contribute because there are limits on “highly paid” individuals. Depending on eligibility, you may also be able to contribute as much as $6,000 to a personal IRA. The good news is that you can wait until you file both your corporate and personal returns to make these decisions, so there’s still a little time. And don’t forget after-tax Roth IRAs and even 529 plans, to which you can make after-tax contributions and have them grow tax free as long as the funds are used for higher education, private school or religious school expenses.
5. Help an employee with student loans
Speaking of education, and thanks to COVID-related legislation, employers can now take deductions of as much as $5,250 each year per employee through 2025 when helping with student loan repayments and the employees won’t get taxed. Considering the enormous amount of student debt many younger workers are carrying, a special payment or bonus to them before year end would go a long a way — and could be a good benefit to consider in order to attract new workers.
6. Re-visit the Employee Retention Tax Credit
Although this credit expired for most employers at the end of September this year, you can still go back and amend your federal payroll tax returns from 2020 and 2021 if you think you’re eligible. To be eligible you must show that you were either fully or partially shut down due to COVID or suffered revenue declines of either 50% (for the last three quarters of 2020 compared with the corresponding quarters in 2019) or 20% (for the first three quarters of 2021 compared with the corresponding quarters in 2019). If you are eligible, the credit is huge — as much as $7,000 per employee per quarter in 2021, for example — and if the credit is more than the payroll taxes you paid, then you can get the money refunded. Many payroll services offer help calculating this credit.
7. Take advantage of the Work Opportunity Tax Credit
This additional credit was extended to 2025 and can reduce your taxes by as much as $9,600 per employee per year if you hire someone who is generally either out of the military, off of welfare, out of prison, or has been unemployed for more than six months (there are other eligibility requirements). If you calculate the credit in advance of hiring a new employee — as some of my clients are doing — you can share the tax savings in the form of a hiring bonus, too, which could make the difference for bringing on that great new talent.
8. Finally, pay your employees to get vaccinated
Employers can still take advantage of a tax credit for the compensation paid to employees (up to a maximum of $511 per day) for time missed getting vaccinated, including additional time if there are any reactions. The president’s November 2021 mandates now require employers to give this time off, but at least you can get reimbursed.
The good news is that some of these tax benefits extend beyond 2021. Which is why it’s important you meet with your account at least twice a year — say, the spring and the fall — to make sure you’re both staying ahead of the rules and making the right moves that will minimize your tax liabilities for the long run.
Gene Marks is a certified public accountant and the owner of the Marks Group, a technology and financial management consulting firm in Bala Cynwyd.