Make Sure Your Taxes Get Done Soon!
One of the things I love about April is that it’s the start of the baseball season. Growing up in Cleveland, Ohio, Opening Day for the Cleveland Indians was always an unofficial local holiday. Mom and Dad often let me skip school that day to go to the game when I could. It was a party I rarely missed as a boy and continued to celebrate all these years later.
My love for baseball has evolved. As a boy, I loved playing the game. I loved listening to the games on the radio at night. And I loved getting to go with my Dad to watch the Indians play at the cavernous Municipal Stadium.
As I got older, I began to appreciate different things about the game. Its slow pace played in a beautiful park on a warm summer’s night makes for a perfect spectator sport. A night at the ballpark with friends or family is one of life’s true joys.
I also have grown to appreciate one of the great lessons the game teaches us about life. Baseball – more than almost any other sport – is a game about the long haul. A lifetime .300 hitter in major league baseball is a very, very good hitter. But he is a hitter who fails 7 out of ten times. He’s a hitter, who at the end of any one season will almost certainly have about 180 hits. But on any given night is almost as likely to have 0 hits as he is to have 3. The point is: the game shows us how we have to put so much effort to succeed in every moment of our own games of business or life. And when we do, two things happen. We get a tiny outcome that we oftentimes don’t really know what it will be. But we also get to see all those tiny outcomes add up to a much more predictable big result.
I have been living that life of tiny, unpredictable outcomes. And I have lived that life long enough now to be able to look back and see how the big results that were the sum of those tiny unpredictable outcomes were actually pretty predictable based on the effort I put into getting the tiny outcomes. I have been blessed with enough successes on balance to be like the .300 hitter who fails at the plate 7 out of 10 times but is still considered a success at the game. I have failed more than I have succeeded on life’s tiny outcomes. But so far, I have been a big winner with a wonderful family and the good fortune to earn my living by doing work that I love.
So how are you doing with your tiny outcomes? Are you building a business? Are you getting yourself physically fit? Are you learning a new skill? Are you trying to change an old habit? Last month, a client sent me a two-word email that still makes me smile. He wrote to me: “Thanks, Coach.”
I love counseling my clients. I love being their “coach.” I love getting to share in your successes. And for that, I thank you.
For this Month’s Main Video, I have 3 Ways to Significantly Reduce Your Tax Bill For 2020.
The shutdowns and economic fallout from the pandemic made last year rough for a lot of businesses. But thanks to recent legislation, you could see a silver lining in the form of major tax-saving opportunities. First off, in addition to emergency loans like the Paycheck Protection Program and Economic Injury Disaster Loan, the Coronavirus Aid, Relief, and Economic Security Act – known as the CARES Act – includes several significant tax breaks for struggling businesses. Second, multiple provisions of the 2017 Tax Cuts and Jobs Act also continue to provide potentially hefty reductions to your business tax bill.
So, here are three key tax-saving opportunities that you should keep top of mind when you file your 2020 return.
1. Don’t Forget to Increase Your Business Interest Deduction
Under the CARES Act, the business interest expense deduction for 2019 and 2020 increased from 30% to 50% of your adjusted taxable income. And, any business interest expense that isn’t allowed as a deduction for this year is carried forward to next year.
In addition, for 2020 you can apply the 50% deduction limit based on your 2019 adjusted taxable income. For most businesses, this should increase your deduction, since many companies will have more taxable income in 2019 than 2020 due to the pandemic.
2. You May Want to Amend Prior Year Tax Returns to Carry Back Recent Losses For Up To Five Years
The pandemic caused many small businesses to incur net operating losses (NOLs) for 2020. But thanks to the CARES Act, you may be able to apply a net operating loss generated in 2020 to income from the past five years, and use it to get a potential immediate tax refund.
Under the CARES Act, if your business had a net operating loss in 2018, 2019, or 2020, you can carry it back for up to five years to recover taxes paid in those years. For example, if you have a net operating loss in 2020, that loss can be carried back as far as to 2015.
Net operating loss carrybacks allow you to claim refunds for taxes paid in the carryback years. And because tax rates were significantly higher before the Tax Cuts and Jobs Act went into effect in 2018, net operating losses carried back to those years can result in big refunds. If you have available net operating losses, claim your refund by filing amended returns for the applicable years.
3. Consider Taking a 20% Qualified Business Income Deduction For Pass-Through Income
One of the biggest tax breaks offered by the Tax Cuts and Jobs Act was the Qualified Business Income deduction, and it’s still available. Running through 2025, this provision allows qualifying business owners to take a straight 20% deduction on your net business income for the year. And this deduction is in addition to any ordinary business expense deductions.
To qualify, your business must be a “pass-through” entity, meaning your company’s taxes pass through and are paid at your personal income tax rate. This structure includes sole proprietorships, partnerships, limited liability companies, and S corporations.
The deduction does have some restrictions, including for specific types of service businesses, and it begins to phase out once your taxable income surpasses $163,300 if single and $326,600 if married and filing jointly. Given these restrictions, meet with us, as your Family Business Lawyer™, to see if your company qualifies. In addition to these tax breaks, there are numerous other tax-saving opportunities available. So even if you don’t qualify for any of these, it’s almost certain there are others you can benefit from. We are happy to work with your tax advisor to make sure you find them all.
April is usually tax month. So our Main Video was about how businesses can save on taxes. For our Featured Video, I want to share with You 3 Ways To Save Big Money On Your Personal 2020 Taxes
2020 was a nightmarish year for many families. But thanks to recent legislation, you could see a silver lining in the form of major tax breaks.
First up, the IRS pushed the deadline for filing your 2020 personal income taxes back from April 15 to May 17, 2021, which gives you an extra month to get your taxes handled.
Next, the Coronavirus Aid, Relief, and Economic Security Act – known as the CARES Act – provides individual taxpayers with several hefty tax-saving opportunities, many of which are only available this year. And the American Rescue Plan that President Biden signed into law on March 11 this year offers not only additional stimulus payments to most
Americans, but also includes significant tax relief for those taxpayers who received unemployment benefits in 2020.
While there are dozens of tax breaks available for 2020, here are 3 of the leading ways you can save big money on your yearly return.
1. Let’s talk about Unemployment Benefits
Taxpayers who received unemployment benefits in 2020 were just provided with serious tax relief. Unemployment benefits are typically taxable income. But Under the American Rescue Plan, the first $10,200 of your 2020 unemployment benefits are tax-free if your annual household income is less than $150,000.
Note that if your unemployment benefits exceed $10,200, you’ll need to report the excess as taxable income and pay taxes on the amount over the limit. And if your household income is over $150,000, you’ll need to pay taxes on all of your unemployment benefits.
If you already filed your 2020 return and paid taxes on your unemployment benefits, the IRS plans to automatically process your refund. This means you won’t have to tax any extra steps, such as filing an amended return, to secure the refund.
2. Waived required minimum distributions from your retirement accounts
If you are at least 72 years old, you’re typically required to take an annual required minimum distribution from your IRA, 401(k), or other tax- deferred retirement account. But the CARES Act temporarily waived the required minimum distribution requirement for 2020. The waiver also applies if you reached age 70½ in 2019, but waited to take your first required minimum
distribution until 2020.
Required minimum distributions generally count as taxable income, so taking this waiver means you may have lower taxable income in 2020—and therefore owe less taxes. But there are a number of factors to consider, including your living expenses, when deciding to waive your required minimum distributions. Given this, consult with your tax advisor before
making your decision.
3. Child Tax Credit
If you have children aged 16 or younger, the Child Tax Credit is one of the most effective ways to reduce your taxes—and there are special rules for 2020 that can save you even more.
For 2020, you can claim up to $2,000 per qualified child as a tax credit, and under rules due to the pandemic, you can use either your 2019 income or your 2020 income to calculate your credit—whichever year offers the most savings. The credit begins to phase out when your income reaches $75,000 for single filers, $150,000 for joint filers, and $112,500 for head of household filers.
These are just a few of the tax breaks available for 2020. There are plenty of others that might be up for grabs, so meet with us, as your Family Business Lawyer™ and we will be happy to work with your tax advisor, to make sure you don’t miss a single one.
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