NOTE: The due dates have been updated since the original publishing date. The April 15 due date for individuals and corporations is now July 15, 2020. The first installment of estimated taxes has changed to July 15, 2020.
It’s that time again…tax season. Margaret Mitchell said, “Death, taxes and childbirth! There’s never any convenient time for any of them.” But here we are.
Submitting your business income tax return for 2019 goes without saying. This must be done by the applicable due date. (For calendar year businesses: March 16, 2020, for partnerships and S corporations; *April 15, 2020, for C corporations and sole proprietorships -- NOTE: due date has been changed to *July 15, 2020). If you can’t meet the due date, be sure to obtain a filing extension. With that said, the subject of taxes isn’t over.
Here are 5 actions that you should consider taking in conjunction with filing your income tax return.
1. Reviewing your tax-related business practices
Once you’ve filed your return, take the time to review what you learned about your tax position and your business practices.
- Did you have the right records to enable you to claim all of the tax write-offs to which you were entitled?
- Is your current accounting solution meeting the needs of your growing business?
- Are you handling reimbursements for employees’ business expenses in the best way?
Discuss these and other issues with your tax preparer.
2. Paying estimated taxes
If you are an owner of a pass-through entity, you may have to pay estimated taxes to avoid underpayment penalties. The first installment of estimated taxes for 2020 is due on April 15, 2020. Here are some ideas to help with estimated taxes:
- If you are an S corporation (or an LLC that elected to be taxed as one), adjust withholding from wages to cover the tax on your share of projected profits for the year.
- If you have a working spouse with whom you file a joint return, the spouse can increase his/her wage withholding to cover your share of projected taxes for the year.
- Peg estimated taxes for 2020 at 100% of your 2019 tax bill (110% if your adjusted gross income in 2019 was more than $150,000, or $75,000 if married filing separately). Doing this avoids any underpayment penalty regardless of what your ultimate 2020 tax bill turns out to be.
3. Funding a retirement plan
Even though the year has closed, you can still put money into a retirement plan. If you don’t have one set up, you can set up and fund a SEP by the due date of your return (including extensions). You can even do so with a tax refund if you arrange things correctly. The IRS says, “If you obtain an extension for filing your tax return, you have until the end of that extension period to deposit the contribution, regardless of when you actually file the return.”
Here’s how to make your refund work for you. For 2019, you are a sole proprietor with no employees and do not have a retirement plan. You set up a SEP plan now for 2019 and expect to get a tax refund. You obtain a filing extension, file your return claiming a deduction for a SEP contribution as soon as possible, get the refund, and put the money into SEP before the extended due date expires. (Be sure to notify the financial institution with which you have your SEP that the contribution is for the 2019 plan year.)
4. Submitting an FBAR report
If you have any foreign financial accounts, you may be required to file a separate report—FinCEN Report 114—with the U.S. Treasury. For example, if you are an employee-owner of a corporation with signature authority over the corporation’s foreign financial accounts, you or the corporation must file the form (see FAQs) .
5. Filing for a tax refund
Because of “extender” legislation signed into law on December 20, 2019, more than two dozen provisions that expired at the end of 2017 were retroactively extended to 2018 (they apply to 2019 and 2020 as well). If you were eligible for any of these breaks, consider filing an amended tax return to claim a refund. The government does not automatically refund these taxes to you; it’s up to you to file for them.
Despite the so-called “tax season” during which income tax returns are filed, taxes are really a year-round activity. Take a breath and start to plan for 2020 actions to maximize your tax position for the year. You can learn more in my book J.K. Lasser’s Small Business Taxes 2020.