Specialty Fabrics Review December 2020 - 43

BUSINESS

FOCUS

Year-end tax savings
Smart moves in the age of COVID-19.
BY MARK E. BATTERSBY

iven the effects of the coronavirus pandemic on the economy, keeping a specialty
fabrics operation's tax bill low shouldn't be a problem this year. However, to keep
the business's tax bill low year after year requires planning, and what better place to
start than in a troubled tax year? This may be the year for losses, substantial losses in some
cases, but those losses don't have to be a bad thing. The Coronavirus Aid, Relief and Economic
Security (CARES) Act, as one example, temporarily allows net operating losses (NOLs) to be
carried back to earlier tax years.
COPING WITH LOSSES
The result of temporarily allowing NOLs to be carried back to earlier tax years is a refund
of taxes paid in those earlier, more profitable years and an infusion of badly needed cash.
Thus, businesses that incur NOLs in 2018, 2019 or 2020 can carry back those losses as far as
2013, 2014 and 2015 respectively. Since the maximum corporate tax rate for tax years prior to
2018 was 35% rather than today's 21% corporate tax rate, the carrybacks can be rewarding.
And don't forget that the former 30% limit on deducting business interest has been
increased to 50% of the specialty fabrics operation's income. As was the case with the old
ceiling, the new 50% limit on business interest deductions doesn't apply to small businesses.
YEAR-END MOVES
One tricky but popular strategy for minimizing tax bills involves pushing income to next
year while accelerating expenses this year. After all, why pay taxes now when you can pay
later? But if your fabrication operation doesn't appear to be profitable this year, deferring
(postponing) deductions to a later, hopefully more profitable, year might be a good strategy.
After all, those deferred deductions may be useful in minimizing tax bills down the road.
Other strategies include:
*Small Business Health Care Tax Credit: Businesses employing 25 or fewer full-timeequivalent employees with average annual wages no greater than $54,200 (in 2019) may
qualify for a tax credit to help pay for employees' health insurance. The tax credit is worth
up to 50% of the employer's contribution toward its employees' premium costs (up to 35%
for tax-exempt employers).
*Repairs: Whenever possible, end-of-year repairs and expenses should be deducted immediately,
rather than capitalized and depreciated. Small businesses lacking applicable financial statements
(AFS) are able to take advantage of de minimis safe harbor by electing to deduct smaller
purchases ($500 or less per purchase or per invoice). Businesses with applicable financial
statements are able to deduct $5,000. Small businesses with gross receipts of $10 million or
less can also take advantage of safe harbor for repairs, maintenance and improvements to
eligible buildings.
*Retirement plans: Perhaps changing your company's retirement plan or other benefits
plans makes sense. Self-employed individuals who have not yet done so should set up selfemployed retirement plans before the end of 2020.
A properly designed 401(k) can be self-directed and utilized in real estate transactions,
hard-money lending and investments in the business. Business owners might also consider
converting their traditional IRA or 401(k) to a Roth IRA and start paying taxes at a lower rate
without paying taxes on withdrawals in the future.

Tax help
To find a capable, qualified tax professional, ask your business accountant
or bookkeeper. Referrals from trusted
business associates can provide excellent sources. You can also find certified business tax advisors near you
by visiting the Association of International Certified Public Accountants
(AICPA) website at www.aicpa.org or
the National Association of Enrolled
Agents at www.naea.org.

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Specialty Fabrics Review December 2020

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