1. Home
  2. News and Insights
  3. Year-End Tax Planning Moves for Small Businesses

December 04, 2019

Year-End Tax Planning Moves for Small Businesses

Hands on laptop

It's hard to believe 2019 is almost over! It's been a busy year in many sectors, often forcing small business owners to put tax planning on the back burner while they've tended to daily business operations.

But procrastinate no longer. Review the following business related topics with your accountant or tax adviser to ensure you are as prepared as possible for the upcoming 2020 tax year:

  1. Income and Deductions from Pass-Through Entities
  2. Maximizing the Deduction for Income from a Pass-Through Entity
  3. Claiming 100% Bonus Depreciation for Asset Additions
  4. More Generous Section 179 Deduction Rules
  5. Selling Qualified Small Business Stock

Do You Have a Tax-Favored Retirement Plan?

If your business doesn't already have a retirement plan, it might be time to take the plunge. Current rules allow for significant deductible contributions.

For example, if you're self-employed and set up a SEP-IRA, you can contribute up to 20% of your self-employment earnings, with a maximum contribution of $56,000 for 2019. If you're employed by your own corporation, you can contribute up to 25% of your salary to your account, with a maximum contribution of $56,000.

Other small business options include defined benefit pension plans, SIMPLE-IRAs, and 401(k) plans. You can even set up a solo 401(k) plan for just one person. Depending on your circumstances, these other types of plans may allow bigger deductible contributions.

Important note: If your business has employees, your plan may have to cover them, too.

The deadline for setting up a SEP-IRA for a sole proprietorship business and making the initial deductible contribution for the 2019 tax year is October 15, 2020, if you extend your 2019 return to that date. Other plans generally must be established by December 31, 2019, if you want to make a deductible contribution for the 2019 tax year. But the deadline for the contribution itself is the extended due date for your 2019 return.

There's one exception: To make a SIMPLE-IRA contribution for 2019, you must have set up the plan by October 1, 2019. So, you might have to wait until next year if you prefer the SIMPLE-IRA option.

Meet with Your Tax Pro Before Year End

A positive side effect of congressional gridlock is that the tax law hasn't changed much over the last year. Most TCJA provisions that affect small businesses went into effect in 2018, and the year-end tax planning strategies that worked for 2018 are generally valid for the current tax year.

However, your specific business situation might have changed. Don't assume that last year's strategies will minimize your 2019 tax bill. Work with your tax pro to identify the optimal year-end tax planning moves based on your current circumstances.

After you meet with your tax adviser or accountant, make sure you touch base with your Payroll Specialist to correctly implement any changes you wish to make to your payroll including retirement plans, employee withholding changes, accruable benefit policies, and more.

2019 Individual Federal Income Tax Brackets

  Single Married, Filing Jointly Head of Household
10% tax bracket $0 - $9,700 $0 - $19,400 $0 - $13,850
Beginning of 12% bracket $9,701 $19,401 $13,851
Beginning of 22% bracket $39,476 $78,951 $52,851

Beginning of 24% bracket

$84,201 $168,401 $84,201
Beginning of 32% bracket $160,726 $321,451 $160,701
Beginning of 35% bracket $204,101

$408,201

$204,101

Beginning of 37% bracket

$510,301 $612,351 $510,301

Projected 2020 Individual Federal Income Tax Brackets

  Single Married, Filing Jointly Head of Household
10% tax bracket $0 – $9,875  $0 – $19,750  $0 – $14,100 
Beginning of 12% bracket  $9,876 $19,751 $14,101
Beginning of 22% bracket $40,126 $80,251 $53,701
Beginning of 24% bracket $85,526 $171,051 $85,501
Beginning of 32% bracket $163,301 $326,601 $163,301
Beginning of 35% bracket $207,351 $414,701 $207,351

Beginning of 37% bracket

$518,401 $622,051 $518,401