Q. I’m a business owner. What should I be thinking about as I approach an uncertain 2021?
A. Year-end tax planning for 2020 takes place against the backdrop of legislative changes from the Tax Cuts and Jobs Act (TCJA) and the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). The changes include:
- The corporate tax rate has been cut to 21 percent,
- The corporate alternative minimum tax has been repealed,
- Business interest deductions have new limits,
- Expensing and depreciation rules have been liberalized, and
- Deductions for noncorporate taxpayers with qualified business income from pass-throughs has been introduced.
A new administration can bring tax law changes, including an increase in the corporate tax rate and a new corporate minimum tax. Pass-through entities could also be impacted by changes to individual income taxes.
A couple of other considerations:
- Is your business structure still appropriate? Tax rate changes can impact this decision.
- Are low interest rates factoring into your exit-planning and wealth transfer strategies? Grantor Retained Annuity Trusts (GRATs), Charitable Lead Annuity Trusts (CLATs), the use of Intra-Family lending, and the use of loans or sales to grantor trusts work well in a low interest rate environment.
Consult with your tax and business advisers for more information and to determine personalized strategies to meet your needs.