Tax Preparation & Planning: 7 Valuable Insights for 2020


Tax planning is imperative for minimizing fees and expenses. There are over 30 million small businesses in the United States. Of all the hassles that confront small business, none are as feared as taxes. Having a winning 2020 tax strategy is essential to being viable as a business. On average, small business owners pay 19.8% taxes. The average small business gives up almost one-fifth of their profits to taxes.
There are a lot of tax strategies to help address this loss, but having the right one for your business can mean the difference between making it and not.

Also read: What Is FUTA Tax - All You Need To Know


Tax Strategies

The important thing about having a tax plan is making sure it’s tailor-made to fit your business. A tax strategy should address your comprehensive issues. How much do you pay in taxes? How can you get more deductions? Could we change a process in order to qualify for more substantial deductions? Here are seven valuable insights to help shape and adjust your tax strategy for 2020:

1. Don’t Ignore Taxes

The most important fundamental to having a winning tax strategy is to not ignore your taxes. This includes trusting your accountant to do all the work for you. If you’re the owner of a business, you should research and understand the tax laws that affect your business. Tax laws are not set in stone, and they do change. Don’t be caught off guard by these changes, stay up to date on local, state, and federal tax laws.
It’s important that you understand how these changes will impact your day to day operation.

Also read: Do You Have To Pay Back FAFSA?


2. Take Command Of Your Taxes

One of the best things a small business owner can do is to become involved in tax preparation. Don’t trust others to handle things in your best interest; make sure you check on everything. Provide excellent leadership to the financial side of your business. One significant area of leadership is empowering your accountant to help build your tax strategy. They aren’t just plugging in numbers.
Accountants have valuable knowledge that may be leveraged for you. Make sure your payroll and human resources are also staying up to date and aware.

Also read: A Full Breakdown of W2 And 1099 Filing Specifications


3. Reimburse Correctly And Accurately

If your business requires that you reimburse employees for any expense, make sure it’s a template the IRS accepts. Doing it right means deducting the expense, but you don’t report the reimbursement as taxable income for the employee. Reimbursing this way as part of a tax strategy will help you and your employees. If you report the reimbursement as income, both of you will have to pay taxes on it.
Finding win-win solutions like this can save your business a tremendous amount of money over the long haul.

Also read: A Full Guide on How to Calculate Income Tax On A Pay Check


4. Understand The Depreciation Of Equipment

It can be tempting to claim everything possible each year. That’s a good idea in most situations. When it comes to equipment for your business, you may want to consider carefully whether it’s a good idea. In the current tax law, you can deduct up to $1 million in equipment upfront. If you’re anticipating a significant growth in profits over the next few years, consider waiting on that deduction.
While tax planning, speak to your accountant about spreading out that write off over a few years by claiming depreciation on the equipment. As your taxable income goes up, so will the money you save on the write-off. For instance, if you’re paying 20% taxes, a write-off of $10,000 will save you $2,000 in taxes. If your profit goes up and you land in the higher bracket of 35%, you’ll save more on the same $10,000 write-off.

Also read: How to Review Your Paychecks Before Filing Income Taxes


5. Always Write Off Travel Mileage

If your business requires you or others to travel, make sure you’re recording the travel distance and time accurately in your tax strategy. According to the IRS, you can write off 58 cents per mile. This could help alleviate a considerable amount of your tax burden. There are other tax write-offs that need to be considered when travel is concerned. These include reimbursement for food and lodging.
Even if you’re the one going on the trips, you can still write off these expenses.

6. Use Fringe Benefits Instead Of Direct Payroll

Anytime you distribute payroll, bonuses, or other forms of monetary payment, you have to pay taxes. Paystubs record all benefits paid like insurance and retirement. In many cases, these types of benefits do not count as taxable payroll. This is not to say that you shouldn’t increase the pay your employees receive. Instead of doing it all as monetary remuneration, consider these other avenues.
Giving a small raise in dollars and a big chunk towards retirement, insurance, or a healthcare savings plan could better benefit both your employees and your business.

7. A Small Business Owner's Income and Taxes

If you pay yourself from your business profits, you have to pay taxes on it. You can lower this tax burden by rewarding yourself in other ways. Low-interest loans from your business are one possibility, and so are bonuses in retirement plans. Managing what you pay in taxes will help your business out as well. Your business can’t survive if you aren’t making enough money.
Good tax strategies that are effective will have to consider your income and your business income as equally important.

Business Expenses Come in All Forms

Careful tracking of expenditures and reimbursements is a cornerstone of good tax strategies. Being informed and doing your research is the only way to make sure you don’t miss anything. If you have any questions, you should immediately ask your accountant. It’s their job to help you understand taxes. Using winning tax strategies can be the difference between a business that makes it and one that fails.
Don’t risk your future and the future of your employees. Use all the resources at your disposal to deal with taxes legally and fairly. Need to keep track of salary information, overtime and more? Just select a template of your choice and begin the process of using our paystub maker!

Frequently Asked Questions

Yes, there are several tax breaks available, such as the American Opportunity Tax Credit and the Lifetime Learning Credit. You can also deduct student loan interest and take advantage of tax-advantaged college savings plans like a 529 plan.

Yes, there are several changes, such as the updated federal income tax brackets, the increase in the standard deduction, and modifications to several tax credits. Stay informed and consult a tax professional if you have questions.

While not required, hiring a tax professional can help you maximize your deductions and credits, ensure compliance with tax laws, and provide valuable advice on tax planning strategies.

Invest in tax-exempt municipal bonds, or consider a tax-managed mutual fund. Consider holding investments for over a year to qualify for the lower long-term capital gains tax rate.

Monitor your investment portfolio and consider selling poorly performing assets to offset capital gains. Be aware of the "wash sale" rule, which disallows the deduction of a loss if you repurchase the same security within 30 days.

Keep track of all deductible expenses, such as medical expenses, charitable donations, and work-related expenses. Research available tax credits, such as the Child Tax Credit, and ensure you meet the requirements to claim them.

Keep accurate records of income and expenses, stay updated on tax law changes affecting your industry, and consider hiring a tax professional to help you navigate the complexities of business taxes.

1. Maximize deductions and credits 2. Save for retirement 3. Make tax-efficient investments 4. Manage capital gains and losses 5. Take advantage of tax breaks for education 6. Plan for business taxes 7. Get professional help if needed

Contribute to tax-advantaged retirement accounts like a 401(k) or an IRA. These accounts allow you to defer taxes on your contributions and let your investments grow tax-free until you withdraw the funds.

Tax planning should be ongoing throughout the year. Start by reviewing your previous year's tax return, monitor changes to tax laws, and adjust your strategies accordingly as your financial situation evolves.
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Tax Preparation & Planning: 7 Valuable Insights for 2020
Samantha Clark

A Warrington College of Business graduate, Samantha handles all client relations with our top-tier partners. Read More

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