Don’t let the holiday rush keep you from taking some important steps to reduce business taxes for 2019. You still have time to execute a few strategies, including:
Thinking about purchasing new or used heavy vehicles, heavy equipment, machinery or office equipment in the new year? If so, be sure to buy it and place it in service by December 31. By doing this you can deduct 100% of the cost as bonus depreciation.
Although “qualified improvement property” (QIP) doesn’t qualify for bonus depreciation, it’s eligible for Section 179 immediate expensing. Both interior improvements to non-residential real property generally counts as Qualifying Improvement Properties. Additional QIPs include roofs, HVAC, fire protection systems, alarm systems and security systems with the placement of service after placing the building in service.
You can deduct as much as $1.02 million for QIP and other qualified assets placed in service before January 1. In addition, qualifying assets must not exceed your amount of taxable income from business activity. Once you place in service more than $2.55 million in qualifying property, the Sec. 179 deduction begins phasing out on a dollar-for-dollar basis. Additional limitations may apply.
If you don’t already have a retirement plan, you still have time to establish a new plan, such as:
The deadline for setting up a SIMPLE IRA to make contributions for 2019 tax purposes was October 1. Exception to deadline is applicable if your business started after that date. If your circumstances, such as your number of employees, have changed significantly, you also should consider starting a new plan before January 1.
Generally, retirement plans must be start before year-end. However, you usually can deduct any contributions you make for yourself and your employees until the due date of your tax return. You also might qualify for a tax credit to offset the costs of starting a plan.
If your business operates on a cash basis, you can significantly affect your amount of taxable income by accelerating your deductions into 2019 and deferring income into 2020 (assuming you expect to be taxed at the same or a lower rate next year).
For example, you could put recurring expenses normally paid early in the year on your credit card before January 1 — that way, you can claim the deduction for 2019 even though you don’t pay the credit card bill until 2020. In certain circumstances, you also can prepay some expenses, such as rent or insurance and claim them in 2019.
As for income, wait until close to year-end to send out invoices to customers with reliable payment histories. Accrual-basis businesses can take a similar approach, holding off on the delivery of goods and services until next year.
Bear in mind that some of these tactics could adversely impact other factors affecting your 2019 tax liability, such as the qualified business income deduction. Contact our Chicago tax accounting services team to make the most of your tax planning opportunities!