Page 29 - BusinessWest November 23, 2020

BUSINESS TAX PLANNING
Depreciation-related Deductions
Under current law, a business may benefit from a combination of three depreciation-based tax breaks: the Sec- tion 179 deduction, ‘bonus’ deprecia- tion, and regular depreciation.
• Place qualified property in service before the end of the year. Typically,
a small business can write off most, if not all, of the cost in 2020.
• The maximum Section 179 allowance for 2020 is $1,040,000 pro- vided asset purchases do not exceed $2,590,000.
• Be aware that the Section 179 deduction cannot exceed the taxable income from all your business activi- ties this year. This could limit your deduction for 2020.
• If you buy a heavy-duty SUV or van for business, you may claim a first- year Section 179 deduction of up to $25,000. The ‘luxury car’ limits do not apply to certain heavy-duty vehicles.
• If your deduction is limited due
to either the income threshold or
the amount of additions, a first-year bonus depreciation deduction of 100% for property placed in 2020 is also available.
• Massachusetts does not follow the bonus depreciation, but does allow the increased Section 179 expense; how- ever, many states do not follow that increased expense either.
Business Interest
• Prior to 2018, business interest was fully deductible. But the TCJA gener- ally limited the deduction for business interest to 30% of adjusted taxable income (ATI). Now the CARES Act raises the deduction to 50% of ATI, but only for 2019 and 2020.
• Determine if you qualify for a special exception. The 50%-of-ATI limit does not apply to a business with average gross receipts of $25 million (indexed for inflation) or less for the three prior years. The threshold for 2020 is $26 million.
Bad-debt Deduction
During this turbulent year, many small businesses are struggling to stay afloat, resulting in large num- bers of outstanding receivables and collectibles.
• Increase your collection activi-
ties now. For instance, you may issue a series of dunning letters to debtors ask- ing for payment. Then, if you are still unable to collect the unpaid amount, you can generally write off the debt as a business bad debt in 2020.
• Generally, business bad debts
are claimed in the year they become worthless. To qualify as a business bad debt, a loan or advance must have been created or acquired in connec- tion with your business operation and result in a loss to the business entity if it cannot be repaid.
“This is the time to paint your over- 2021 to increase your 2020 deduction. • Switch to cash accounting. Under
all tax picture for 2020. By developing a year-end plan, you can maximize the tax breaks currently on the books and avoid potential pitfalls.
a TCJA provision, a C-corporation may use this simplified method if average gross receipts for last year exceeded $26 million (up from $5 million).
• An employer can claim a refund- able credit for certain family and medi- cal leaves provided to employees. The credit is currently scheduled to expire after 2020.
• Investigate Paycheck Protection Program (PPP) forgiveness. Under the CARES Act, PPP loans may be fully or partially forgiven without tax being imposed. Despite recent guidance, this remains a complex procedure, so
Miscellaneous
• If you pay year-end bonuses to employees in 2020, the bonuses are generally deductible by your company and taxable to the employees in 2020. A calendar-year company operating on
”
the accrual basis may be able to deduct bonuses paid as late as March 15, 2021 on its 2020 return.
• Generally, repairs are currently deductible, while capital improve- ments must be depreciated over time. Therefore, make minor repairs before
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