Part of Utah’s Tech Corridor? The Time for 2020 and 2021 Tax Planning is NOW. *Hint: Don’t forget to check for refunds recently unlocked on past returns.
By: Jill Ottley, CPA
A pandemic. A renewed call for racial equity. The 2020 election. While the tectonic upheavals of 2020 have not been easy to navigate, many of Utah’s tech companies have pioneered their way through unprecedented times. Agility and innovation are hallmarks of the Beehive State’s tech sector, after all.
No matter where your company falls on the tech spectrum – large or small, startup or established, thriving or still in pivot-mode – end-of-year tax planning is essential.
While you’ve been focused on adapting to a new business landscape, the tax landscape has also been in flux. Beyond PPP loans and loan forgiveness, the CARES Act unleashed a confetti of tax provisions that may provide additional relief, both in future years and on past returns.
Here are five of the most important and beneficial 2020 and 2021 tax planning considerations for Silicon Slopes businesses.
- Know what to expect during the next inning of your PPP loan: loan forgiveness. How will your PPP loan affect your reportable income and expenses on your 2020 tax return? Did you know that recipients of loans of $50,000 or less can apply for forgiveness with a simplified application, and may not be subject to the same reductions as larger employers? Understanding tax treatment of PPP loans now, will help you avoid surprises come March or April.
- Carry back losses from 2018, 2019, and 2020 to unlock refunds on prior returns. If you reported or will report significant business losses on your 2018, 2019, or 2020 return, and reported significant income on any of the previous five years of returns, a net operating loss (NOL) carryback may provide needed cash flow. The carryback option was eliminated with the Tax Cut & Jobs Act, but revived for years 2018-2020 by the CARES Act. The NOL Carryback is available to both individuals and C corporations.
- Update depreciation on Qualified Improvement Property (QIP). An inadvertent oversight of the Tax Cuts & Jobs Act made QIP depreciable over 27.5 or 39 years, and ineligible for BONUS depreciation. The CARES Act remedied this oversight, restoring the 15-year life of QIP and making it eligible for 100% BONUS depreciation in the year of acquisition. The result? The ability to deduct more depreciation expense in 2020, or prior years back to 2018.
- Strategize for potential tax law changes. While no tax professional has a crystal ball, 2020 election-related changes in Washington may result in tax law changes effective as early as January 1, 2021. Proper planning now will help you better strategize for these and other changes over multiple tax years.
- Don’t forget to bring your whole business to the table. You may be tech, but no one else is quite like you. Help your CPA understand the history of your business. Share what options you’re considering for the future. Like many tech companies, will a large part of your workforce continue to work remotely? Are you contemplating spinning off a division, acquiring another company, terminating a lease, raising capital, or selling property? Your income and expenses may be vastly different than they were before the pandemic, and that may mean a very different tax outlook than you’ve had in the past. Some decisions can have unforeseen tax consequences. Being candid with your tax professional will enable them to provide the most value by helping you avoid pitfalls and capitalize on opportunities for tax savings.
Schedule a meeting with your trusted financial advisor or CPA today, in time to be able to take necessary action before January 1.