Expert Perspectives

Squire provides complete and personalized accounting solutions to meet your individual needs.

Expert Perspectives

Squire provides complete and personalized accounting solutions to meet your individual needs.

Professional Services Industry: Helpful Reminders to Wrap up 2020

By: Charlotte Clark

The end of the year is a busy time of the year, especially for those in the Professional Services Industry.

Do you think the tax rates will be the same or higher next year? That could depend on the results of the Senatorial election in Georgia and who controls the Senate, but that election occurs after the end of the tax year. It is unlikely tax rates will be lower since there may not be enough votes in Congress to increase them.

How much income and how many deductions do you want to recognize this year? The answer to this question will vary for each individual and business.  Due to the recent presidential election, it is possible we may see Individuals with income over $400,000 and C Corporations have an increase in tax.

Many business owners in the Professional Services Industry file their taxes on a “cash basis”. This means if the business receives the payments in 2020, then it pays taxes on the income it received in that same year.  Likewise, if it receives payments or makes payments in 2021 it will recognize those items on its 2021 tax return. It can be valuable to make a decision with regards to how much income you wish to recognize in 2020, and then take actions accordingly.

If the business received a PPP loan, current IRS standards dictate it will not be able to deduct the expenses that were paid from the loan. The IRS is assuming the loan will be forgiven and not allowing the deductions as a result.  If the loan is not forgiven, then the business will need to amend its return to include the expenses previously not deducted. We are hoping that Congress will take action to help the small businesses, but that unfortunately has not happened yet.

Following are some helpful reminders/ideas as we near the end of 2020:

The first item to consider is the need to purchase equipment before the end of the year. If equipment is bought and placed into service in 2020, a business can take depreciation deductions on that equipment. In most cases, the business can choose to write it off all at once or can choose to depreciate it over time. This is a great bonus, since it gives you flexibility as to how much income you wish to recognize.

Will you be giving bonuses to your employees? Make sure you get the payroll taxes paid on the bonuses and the bonuses are included in the W-2s of your employees.

What plans do you have for your retirement contributions? You may be able to contribute to deductible retirement accounts (like an IRA) or non-deductible retirement accounts (like a Roth). Squire & Company can help you determine which is best for you.

On a personal note, should you make a charitable contribution, make a state tax payment or pay your January mortgage payment early? Some of our clients plan to itemize their deductions every other year. This allows them to put more deductions into the year they itemize their deductions, and then benefit from the higher standard deduction in other years.

You should also consider whether you need to spend from your Flexible Spending Account before the end of the year (so you won’t lose the funds), or perhaps contribute to your Health Savings Account. You get a deduction for amounts you contribute to your Health savings Account, and you don’t have to include your contributions in income when it is used for qualified medical expenses.

Finally, it is a good idea to consider if there is a need to be more organized for next year. Do you need to select a better option for recording your mileage log and/or for saving and sorting your receipts? There are apps created for these purposes if you wish to track and store them electronically.

And most importantly, have a happy holiday season and a happy new year!