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Tax Planning Strategies for Business Owners

As a small business owner, you’ve been through a lot this year. COVID-19 has tried to break down the American dream of owning a business, but business owners will not be crushed under the weight of a global pandemic. Keeping your business afloat with a PPP was your first step, and now as year-end approaches, there are other ways to save money with tax strategies that can help your business even more.

Strategy #1: Healthcare Tax Credit
As a small business, you take pride in taking care of your employees, and if you can provide health insurance, there is satisfaction in knowing you can offer that benefit to your hardworking employees. You could qualify for a healthcare tax credit. You can claim up to 50% of the cost of the premium you pay for employees even if you only pay a portion. To qualify, you must meet the following criteria:

You have fewer than 25 full-time employees
The average annual salary of employees must be $50k or less (indexed for inflation).
You pay for 50% of the premium for your employees.
Offer a qualified health plan through the Small Business Health Options Program Marketplace (SHOP).
This credit is only available for business owners for two consecutive years, so if you haven’t yet taken advantage of this credit, then 2020 is the year to start.

Strategy #2: Charitable Donations
Corporations or S corps can deduct charitable donations on their business tax return. You can deduct cash contributions, in-kind donations, and travel expenses related to volunteering, such as mileage. For in-kind donations of business inventory, you can deduct the fair market value of the goods on the day of the gift. A company can deduct up to 25% of its taxable income in charitable donations. This may not be possible for a struggling business but could be a strategy for those who have experienced fewer hardships.

Strategy #3: Work Opportunity Tax Credit
This credit expires in 2020, so if you’ve made recent hires of specific target groups, you may qualify. Qualifying groups include veterans, ex-felons, and recipients of SNAP, to name a few. A business can deduct between $1,200 and $9,600 for every employee they hire in the qualified group. The employee must work at least 120 hours in the first year of employment.

Strategy #4: CARES-Related Changes
The CARES Act allows employers to defer Social Security taxes for wages between March 27 and December 31 of 2020. The deferred amounts will come due eventually, though. Half will be due by December 31, 2021, with the other half due by year-end 2022. The deferral could be a temporary relief for some businesses. The CARES Act also increased the deduction of interest on business loans from 30% to 50% based on adjusted taxable income (ATI).

Strategy #5: Retirement Plans
For those businesses starting a new 401(k) plan for employees, you can deduct up to 50% of the plan’s start-up cost up to $500 per year for the first three years. This includes set-up fees and costs associated with educating employees on the plan. And lastly, employer contributions can be deducted on a business tax return as long as they are within the IRS contribution limits.

In these difficult times, I’m here to assist you with your business tax planning needs. Year-end is upon us, so act now to save your business money. Contact me today at 480-214-9596 or info@scfinancialservices.com and I will be happy to help you and your business.