We can all agree that 2020 has not gone as expected – a global pandemic, unrest around the world, and an upcoming election that could change the political landscape are just a few of the challenges we have faced. However, despite all the turmoil, the IRS is still in place and taxes are still being assessed.
Unique Recommendations for 2020
While all the typical tax planning strategies still apply, we want to focus on a few recommendations for the 2020 year-end:
Paycheck Protection Program (PPP) Loans
The program came out with a flourish but not many details. The forgiveness process has been much of the same. What we know for sure at this point is that, as it stands today, any forgiveness of the loan is not taxable income to the recipient. However, expenses paid with the forgiven proceeds are also not deductible. As you approach year-end, it’s essential to understand how much of your loan may be forgiven to accurately calculate the taxable income effects on your business.
Consider Gifting Opportunities
With the government programs implemented over the past six months, we feel confident in saying that tax rates likely aren’t going down anytime soon. With the current lifetime exemption at $11.58 Million, now may be the time to consider a gifting strategy to not only take advantage of that exemption but also lock in lower values of gifts given our current economy.
Harvest Capital Gains
Year end is always a good time to review your investment portfolio. For those portfolios that have experienced growth over the recent months and years, now may be a good time to harvest some of the capital gains while the rates are still favorable at 15% for long term gains.
Net Operating Loss (NOL) Generation
The CARES Act provides a temporary five-year NOL carryback for most taxpayers, which may entitle the taxpayer to significant tax refunds. In addition, for losses generated in 2018 – 2020, NOLs can offset 100% of taxable income. If your business has generated a loss for 2020, you may want to consider increasing that loss with acceleration of deductions or deferral of income to go back and recoup taxes paid in prior years.
Our greatest piece of advice is not to make a rash decision based on the political landscape. While many advisors are acting as if the sky is falling, we encourage you to exercise caution in your decisions. Even if we elect a new president in November, there is still time to make a thoughtful decision on what is best for your personal situation. We encourage you to call your tax advisor and discuss how you can best plan for any changes ahead. We are here to help!
Monica Sullivan, CPA and Partner at TDT, brings more than 23 years in diverse tax, financial, and business consulting experience to the firm. Monica specializes in serving privately held companies and their owners through comprehensive tax planning including significant experience in individual, corporate, partnership, estate and gift and trust taxation.