Richard Tullier, CPA explains year-end tax planning in the time of COVID: Throughout this year, I often have thought of a quote from Woody Allen: “If you want to make God laugh, tell him about your plans.” I’d say substitute 2020 for God and the quote applies. While there have been many surprises this year, you still have a chance to actually prepare for one 2021 certainty: taxes will need to be filed.
The simplest goal of tax planning is to accelerate deductions and defer income. In traditional year ends, you would consider if there are any purchases or expenses you will pay in the new year that you could just as easily pay for now, thus accelerating the deduction into the current year on the cash basis. You could also either slow down or accelerate collections depending on your tax method. You would be thinking now about how much to contribute into your retirement plan either personally or through your company. Normally now you would wonder, also, if you could buy something on a credit card and still get the deduction in the current year (yes you can). But mostly you’d be realizing that more money means more taxes.
But this is 2020 and there are new considerations that run contrary to traditional planning. Consider these for year-end tax planning in the time of COVID:
- Would it be better to take income in 2020 if you have large losses?
- When should you apply for PPP loan forgiveness and how does that affect taxes?
- Should you make a withdrawal from your retirement to help pay your bills?
- Do you have prior income years that you can offset with Net Operating Losses from 2020?
- Have you amended returns for any changes from the CARES Act?
If you feel you don’t know the answers, give us a call and we will be happy to go over these and other questions with you. While there have been many surprises this year, you still have a chance to actually prepare for one 2021 certainty: taxes will need to be filed.