We are more than halfway through the year and it’s a good time to work on some tax strategies. It can take some thought, but it can be well worth it to help reduce your tax bill and cash in on the year. Here are five smart tax moves you can make now that can impact your taxes.
1. Leverage Employee Retention Tax Credits
This payroll tax credit stems from the 2020 CARES Act. It was later extended to include 2021. Eligible businesses can save $10,000 per employee in 2020 and $28,000 per employee for the 2021 tax season. If your business was partially or completely shut down because of the pandemic in 2020 or 2021, or if you lost 20% of your revenue in any quarter this year you are eligible. If you didn’t take advantage of this business tax break in 2020, you can amend last year’s payroll tax returns.
2. Hiring workers? Use the Work Opportunity Tax Credit
This income tax credit can be as much as $9600 per employee. The criteria are hiring someone who was recently released from prison, got off welfare, or has been unemployed for over six months. Get ahead of the game by doing some advance calculations. Find out how much you are eligible for and then use some of it as a hiring bonus. This tax credit can be used through 2025.
3. Invest in Capital Equipment
This year you can take advantage of accelerated depreciation rules. You can buy as much as $1 million in capital equipment and deduct all of it in the same year. That is contingent on you putting it into service. It may be worth it to get a small business Loan while interest is low.
4. Consider the One-Time Loss Carryback Provision
The CARES Act offers a carryback loss provision that may be able to generate cash. If your business lost money in 2018, 2019, or 2020, amend the previously filed tax returns and you can carry the loss back. It’s a one-time deal, so now is a great time to leverage it to your benefit.
5. Check Your Inventory
This year has presented many supply chain problems. Now is a good time to revisit your current inventories and fully maximize the supplies you have on hand. You can also consider making other arrangements for things that have been around for years. There is another tax deduction for disposing of backed-up inventory. Plus, you can free up more room for new movable inventory as it becomes available.
Take advantage of as many of these smart tax moves as you can this year. It can mean generating more cash. There is still time to act for this year. Additionally, it may be advantageous to amend taxes filed in previous years.