Take advantage of temporary rule changes in your year-end tax planning 

It’s the time of year when businesses often consider income-tax-minimizing strategies such as deferring revenue and accelerating expenses. But the COVID-19 pandemic, the resulting economic downturn and the upcoming election put a different spin on this year’s tax planning. Here are some tactics worth considering now.

Normally, businesses not expecting to be in a higher tax bracket the following year defer income and accelerate expenses at year end. If your business uses cash-basis accounting, for example, you might defer income into the next year by sending invoices close to the end of the year. Accrual-basis businesses might delay delivery of goods and services until January.

But, in light of this year’s dramatic economic downturn, many businesses hope to be more profitable in 2021. In addition, depending on the election results, federal income tax rates could climb in the not-so-distant future. It might make sense, therefore, to push expense deductions into next year as much as possible — and shift income into this year, while lower rates still apply.

Some creditors, including landlords and lenders, might be willing to let you defer payments ordinarily due in 2020 into early 2021. It may be more challenging persuading your customers to pay you in advance for monies not owed until next year, but small discounts could incentivize them (while also improving short-term cash flow).

You’re allowed to take an ordinary deduction for business debt that becomes worthless. Whether a debt is “worthless” depends on the relevant facts and circumstances. You don’t have to wait until a debt comes due to determine if it’s worthless, or go to court if a judgment would be uncollectible. That means some of your current receivables may be deductible for 2020.

The deduction is allowed only for the tax year within which the debt becomes worthless — you can’t defer it beyond that year. So if, for example, you have customers with unsecured debt that go out of business this year, you should determine now if their debt is already worthless and deductible in 2020.

Notably, temporary changes to the rules for carrying back net operating losses mandated by the Coronavirus Aid, Relief and Economic Security (CARES) Act make bad-debt deductions even more valuable. You can carry back NOLs from 2020 as far as 2015.

The CARES Act extends additional tax relief that could reduce your liability. This includes provisions related to bonus depreciation on qualified improvement property, loss limits and business interest expense. Your CPA can help you take advantage of these and other provisions, as well as the techniques mentioned above.