This year has been very different for the business owner. Many businesses struggled during 2020, due to COVID-19. But if your business was one of the fortunate that had a sizeable 2020 profit, then you may want to find out how you can pay less in taxes! There are some creative ways you can get more deductions and lower your taxes.
Here are some purchases or contributions to make before 12/31/2020 to reduce your tax bill:
- A new business vehicle (Car, SUV, Van or Truck). – It is a little crazy how complicated the rules for a business deduction on a vehicle are. One can read several difficult articles and each article says something a little different with different deduction amounts. Here is our best summary to simplify the rules:
- Over 6,000 pounds – If the vehicle is over 6,000 pounds, your business can deduct the full cost of the vehicle if used 100% for business. If the vehicle is over 6,000 pounds and used 75% for business and 25% for personal use, then you can deduct 75% of the cost of the vehicle. Vehicles over 6,000 pounds include the Ford F150, Chevy Tahoe or Suburban, Work Vans, Ford Explorer, Jeep Grand Cherokee and many others.
- Under 6,000 pounds – If the vehicle is under 6,000 pounds and used 100% for business, the business owner can deduct $18,100 the first year, $16,100 the 2nd year, $9,700 the 3rd year, and $5,760 each year after that.
- Office Furniture – This is 100% deductible! You can finally get that desk that raises up and down! Maybe you need a big screen TV for your office? That would also be deductible! (Note: A big screen TV for your HOME office is not deductible.)
- Computers – Also 100% deductible! You might as well get high quality computers for you and your team! Or, maybe your sales staff needs a few new iPads for the field? It’s Deductible! (Note: A PlayStation 5 for the break room? That would be pushing it!)
- Machines and Equipment – Yes, they are 100% deductible, but the max that can be deducted in one year for a machine or piece of equipment is $1,000,000. (Wouldn’t it be nice to buy a tow truck and expense the whole thing?)
- Contributing to SEP IRA – A business owner can contribute the lesser of 25% of their compensation or $57,000. For example, if the business owner had a $100,000 W2 for their S Corp for 2020, the business owner could contribute $25,000 to their SEP IRA. The business owner has until 4/15/2021 (or later with an extension) to contribute to their SEP IRA to get a 2020 deduction.
Let us help you maximize your deductions!