The US, and for a large part, most of the world, had been experiencing a flourishing, rising plateau of economic growth. Global trade was at a peak, with US markets thriving. In fact, the period of prosperity was so prevailing and robust that it was almost impossible to project the current decline that we find ourselves in. With most enterprises finding themselves in a stretch of difficulty and perhaps even in dire straits, the only way for many businesses to continue existing will be to employ intelligent tax strategies. The better you can leverage your tax approach, the better you can retain cash, allowing you to circulate working capital and continue to grow, albeit at a possibly diminished rate. For some, the growth may be exponentially high once markets have stabilized, and new trends emerge. Here’s a look at five of the best tax strategies that you can turn to to help your company survive through the coronavirus pandemic.
Assess Immediate Damage
Start by assessing the losses suffered as a result of COVID-19’s effect on your business. This will enable you to reduce your tax returns to a bare minimum. The CARES Act has made provision for all firms to cite losses from 2020, 2019, and 2018 ranging back for five years. Please note that the previously reformed tax bill set in place in 2017 is no longer applicable – companies can now carry back their losses. You may be pleasantly surprised by revising past losses as tax rates were far higher during many of those years, which in turn puts more cash in your hands.
Consider Whether You Need Immediate Cash
Before you rush off and cite losses, take the time to evaluate how quickly you need immediate cash as opposed to later larger savings. For example, if your business reported a profit in 2019 and has now hit a slump where cash is needed, it may be better to opt for extra deductions during that same year. However, if 2020 brought a loss and you don’t need the immediate injection of cash, then there are alternative strategies that may net you larger tax benefits.
Determine And Amass Losses
The first way to maximize your tax deductions is to list and cite all losses on your assets and property. This includes all equipment. Look towards things like devalued real estate. After all, property values have taken a hard knock. Out of date, end-of-line inventory that has reached the point where it’s now obsolete can finally be reported as a deduction. Consider anything that has become worth less since you’ve owned it. The only potential pitfall to this could be the fact that many objects will require physical disposal before you can mark them off on your tax form. This doesn’t always mean scrapping the item. You can sell it or potentially even sell it to a partner who then leases it back to the business if the equipment is still in use.
Implement Cost Segregation On Your Assets
Perform a cost segregation study on your assets in order to see whether you can reclassify any owned properties in order to claim based on the diminished value over a shorter period than projected 27.5 or 39 years. The depreciation claim can be significant and qualifies for all fixed assets. There is a bonus claim that can be made once the depreciation value falls to a certain value that allows you to claim up to its total value at cost. The deductions can be made immediately. While cost segregation is an aggressive strategy, it does make sure that you don’t end up tied to assets that have depreciated beyond the point of sale or in the upcoming years when the deduction is no longer possible.
Retail Property Renovations
Here’s yet another benefit that the CARES Act brought to struggling businesses. You can now claim a complete (100%) depreciation on all expenses incurred while improving the interior of any building used for business purposes. The 2017 tax law preventing depreciation further than 39 years is no longer applicable thanks to CARES.
Fixed Asset Scrubbing
Fixed asset scrubbing is akin to performing a cost segregation study in the sense that you sort through depreciable assets to ensure that depreciation is maximized over the entire period. There may be times when you were actually eligible for a complete depreciation claim but only claimed half or overlooked the claim completely. Another thing to look for is where you can depreciate an asset over a shorter period. Perhaps, you’ve got assets that are at end-of-life but have never been filed for a tax return. Every depreciation that you can find will add up to a big rebate.
Insightful Tax Accounting Methods
Never underestimate the value of insightful tax accounting methods to provide relief and stimulate cash flow. There are many opportunities to speed up deductions, including but not limited to cash accounting, employee expenses such as medical, early remuneration for future work, software engineering & development expenses, and many others. This area of tax planning may be extremely complicated with its very own ruleset. See this as an opportunity to discover hidden tax relief strategies and mechanisms, and put the mind of a dedicated, passionate tax official on the job.