Year-end tax planning tips
December 23, 2020

The COVID-19 pandemic has changed the world and had an enormous financial impact, on both small and large businesses across the U.S.

Financial experts agree, year-end tax planning is especially critical this year, as the disruption of the virus has led to a number of important issues with tax implications.

There are a number of matters to consider, as you prepare your 2020 tax returns, according to tax advisors.

1.     After passage of the Tax Cuts and Jobs Act, which ended the corporate alternative minimum tax (AMT), corporations were able to claim all their unused AMT credits for 2018, 2019, 2020 and 2021. The CARES Act advanced the timeline, giving corporations several options to file for fast refunds.  Financial planners suggest filing a tentative refund claim to most quickly gain the funds.  The filing deadline for that type of claim is Dec. 31, 2020.

2.     The CARES Act also returned a prior benefit that permits businesses to use current losses against past income for refunds. For net operating losses that began in 2018,-2020, tax experts say, the NOLs can be carried back five years for refunds against prior taxes. Accounting method changes can be a powerful way to accelerate deductions, however, any non-automatic changes you may want to make for this year must be made by the end of 2020.

3.     In declaring all 50 states, the District of Columbia and five territories disaster areas, as part of the COVID-19 relief package, Pres. Trump effectively said every U.S. business could claim certain losses related to the pandemic on a previous year’s tax return. Among the losses that can be claimed, if certain guidelines are met, are loss of inventory and closure of offices, stores and plants.

4.     For individuals, the CARES Act allows for some charitable deductions without having to itemize. An “above-the-line” deduction of up to $300 for cash contributions is allowable, providing the contribution is made by the end of 2020.

5.     Investing in opportunity zones can be wise, tax professionals say, as you can, potentially, defer paying taxes on gains invested in the specific geographic area until as late as 2026. There are more than 8,000 such zones across the country.

6.     Because the pandemic meant significant cash-flow challenges for millions of Americans, it is important to make sure that your withholding and estimated taxes are in sync with what you anticipate paying. If you find yourself in danger of underpaying taxes and facing associated penalties, tax advisers recommend that you make up the difference by increasing withholding on your salary or bonuses.

2020 has been a challenging year in so many ways and we do not know what 2021 will bring. If you have questions or concerns about tax planning for yourself or your business, please reach out to one of our tax advisors. We are happy to help!


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Diamond & Associates CPAs