As tax filing season officially gets underway, here are several new business-related tax provisions that could help cut your tax bill. The three provisions outlined in this article can also be applied retroactively.
- Net Operating Losses (NOL). When your company’s tax deductions exceed taxable income, the result is an NOL. Tax changes now allow your company to carry back an NOL incurred from 2018 through 2020 for up to five years to offset taxable income. This is a welcome change as 2020 has had a dramatic impact on many business’s bottom line. Businesses can now reclaim some of the income taxes they paid in prior years by using an NOL.
What you need to do. Consider whether amending prior years' tax returns is the right decision for you in order to get a refund of prior taxes paid.
- Qualified Improvement Property. Certain business assets known as qualified improvement property (QIP) can now be immediately depreciated upon being placed in service. QIP is defined by the IRS as any improvement made to an interior portion of a building that is nonresidential real property. This tax benefit will last for at least three more years before being scheduled to phase out.
What you need to do. Look through your fixed asset detail and determine if you have QIP that was placed in service in 2020. These assets would qualify for 100% expensing in 2020. If you have QIP that was placed in service in 2019 or 2018, you have the option of filing an amended return and treating those assets as eligible for 100% expensing.
- Excess business losses. The rule disallowing business losses exceeding $250,000 ($500,000 for married filing jointly couples) for business owners and partners on their individual tax returns is suspended for tax years 2018 through 2020.
What you need to do. If you incurred an excess business loss in 2020, be sure to include the loss on your 2020 tax return. If you incurred excess business losses in 2018 and/or 2019, consider amending your tax return for either or both of these years to remove the excess loss limitation.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.