As year-end approaches, it is a good time to think about planning moves that may help reduce taxes for this year and possibly next. Year-end planning for 2020 takes place during the COVID-19 pandemic, which in addition to its devastating health and mortality impact has widely affected business finances. New tax rules have been enacted to help mitigate the financial impact of the disease, some of which should be considered as part of this year’s planning. To further add to the complexity of year-end planning, we have the uncertainty of any post-election tax legislation.

The challenge with anticipating potential tax law changes is the uncertainty of when they will pass and ultimately what legislative changes will prevail as they make their way through Congress.  President-elect Biden has indicated that he would like to increase the corporate tax rate to 28%, up from the current 21%.  He has also indicated that he would increase individual tax rates which would impact individuals with income from pass-through entities. It is not certain with the impending run-off election in Georgia that will occur in January which party will control the Senate.  If the Republican party maintains its current control, it is unlikely that the corporate and individual tax increases or any other tax changes would occur which makes year-end planning difficult.

There are things you should consider however which are open to planning based on current laws that include:

• Understanding the tax impact of the CARES ACT incentives and the deductibility of expenses paid using a Paycheck Protection Program (PPP) Loan.
• Consider the new election in State of New Jersey that allows pass-through entities to deduct state taxes paid on behalf of its owners as an entity level tax which then reduces Federal income passed through to the owners (NJ BAIT).
• Consider claiming bonus depreciation for 2020 asset additions placed in service before year-end.
• Taking advantage of the increased corporate charitable contribution limitation from 10% to 25% of taxable income for 2020 tax year only.
• Create or increase a net operating loss (NOL) – an NOL incurred in 2020 can be carried back for up to 5 years in order to recover taxes paid in those earlier years.
• Establish a tax-favored retirement plan.

The above are just some items to consider in your year-end tax planning. With all the uncertainty surrounding the pandemic and potential new legislation we encourage you to contact us sooner rather than later so we can assist you in evaluating your planning options.  Our team is here to help you work through strategies that make the most sense for your unique situation. With the increased need to plan along with the constraints of remote working and social distancing we anticipate a very busy year end!  We hope you continue to stay safe and well through the holiday season. Should you have any questions about your year-end tax plan, reach out to me at ewhelan@mercadien.com or 609-689-9700.

DISCLAIMER: This advisory resource is for general information purposes only. It does not constitute business or tax advice and may not be used and relied upon as a substitute for business or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified accountant, tax practitioner or attorney licensed to practice in the jurisdiction where that advice is sought.