If you have ever experienced being ‘caught out’ on your taxes and owing a huge amount, you know you don’t want to repeat that mistake again. We have gathered a few strategies to help you find write-offs with a little time to do what you need to do before the end of 2020.
Disclaimer: You will need to do your own research on these ideas to decide if they are right for you and your business. We always recommend consulting your CPA.
- Putting money in your 401k every year.
There is a pre-tax bonus that can come from your company that matches your 401k plan and is a tax write off. This can allow you to write-off up to nearly $60,000!
- Using a self-directed high deductible health insurance plan.
You can self-direct different insurance accounts and control the money that needs to go in and out of them using something called an HSA, Health Savings Account.
- Capital Loss Harvesting is possible if you have invested in the stock market.
When you have losses in the stock market you can sell your stock at a loss and then buy something comparable around the same price.
- Section 179 Deduction- buying heavy machines or equipment for your business.
You can do a bonus depreciation write off on a vehicle or equipment in service for your business. If you put the equipment or vehicle in service even on Dec. 31st, you can count it toward 2020. You can finance 100% of the vehicle and write it off in full!
- Opportunity Zones- if you are buying or holding residential or commercial real estate in an opportunity zone you have an opportunity for a write-off.
This one definitely requires more research on your part, so google it!
- Cost Segregation Study - with a commercial building or commercial property you can calculate bonus depreciation.
This is a method in which you can calculate the projected depreciation on a piece of real estate and write it all off in year one. KBKG.com is a company that does cost segregation studies at a great price just check in with your CPA to make sure this works for your business and taxes.
- Put your company match into your traditional 401k and convert it to your ROTH.
Now your conversion is at your tax bracket. It is a free conversion to ROTH that you can now grow for free because you have strategically converted your savings money.
- Move around some income, while keeping it in the family.
Are there other people in your family that can work for you? For example, your kids who are in a low tax bracket, can do all sorts of things for your business from running errands to cleaning new properties. You can pay them $10,000 a year which keeps them in a low tax bracket and it is a write-off for your company.
Note: For this to work, they have to legitimately work for you. Make sure it is official with contracts, W-2’s etc. in place, and you can even start a 401k for them.
- Be smart about how you spend money toward the end of the year.
There are many sales at the end of the year, such as Black Friday, Cyber Monday etc.
It is ideal to spend money at the end of the year if you were going to spend it early next year anyway. Spend in 2020 and when you write it off you can move and shift your expenses into the previous year. This allows you to see the return benefit more quickly.
Pro-tip: Here are some more ways to spend money you would spend anyway! Call up vendors and request to buy credit for purchases or marketing expenses for next year to increase your expenditure for this year. Only do this with things you actually need. Training courses, hotel rooms, plan ahead!
- Renew your investors and lenders annual notes.
If you have investors and lenders that are on an annual note and they are renewing their note but don’t want to get their interest paid, you can do a paper conversion. You can renew their note now, and use it as a deduction on your business.
Big write-offs allow you to reduce your active income. Do your research as some of these only work if you are a full-time real estate professional. To owe less money you must reduce your active income and these write-offs will allow you to have losses. I hope this helps as you prepare for taxes coming up right around the corner in the new year!