Smart "Money Moves" To Make Regarding 2020 and 2021 Taxes In The Next 2 Weeks
Small tweaks in how you earn and spend money as an entrepreneur in the next two weeks can save you TONS of your hard-earned cash.
By intelligently spending money, investing in your business, and/or receiving revenue for your business in the next two weeks, you can potentially save thousands or even tens of thousands of dollars on your tax liabilities for both 2020 and 2021.
These are little tweaks at the fringes, but if you’re running a successful business, the savings could be 4, 5, or even 6 figures.
Simply put, if you had a great year, then you’ll want to spend or invest (within reason) in your business before midnight on December 31, 2020 so that qualified tax write-offs can be considered for this calendar year when you file taxes in coming months.
If you had a less than stellar year, holding off on expenses until January 1, 2021 can help you bring those write-offs into the next calendar year.
Plus, perhaps you can offer a slight discount for clients who can pay you before end-of-year to both save them money and increase your earned income during a year when your taxes will be lower than next year perhaps.
NOTE - I’m not a tax expert, so talk to your accountant and do your own research. This is strictly for informational purposes only, but I want you to save your hard-earned cash because being a small business owner is hard enough without worrying about taxes at the end of the year.
Deferred Income and Expenses
If you are expecting your company to earn more next year than this year (in profit, not revenue), then you’ll want to defer big expenses until January 1, 2021 so that any qualified business expenses can offset your increased earnings when you file 2021 taxes in Q2 or Q3 2022.
The easiest way to defer expenses is to look at bills you pay every month such as office space, internet, and ongoing vendors and ask that you cut a check on January 1, 2021 to pay your bills for December.
You might have to ask for a few days or weeks of “grace”, or offer to pay a few percentage points of interest, but depending on your monthly expenses, you can “defer” these write-offs to the next calendar year by doing this.
When it comes to deferred income, if you have done AMAZINGLY WELL this year and expect to earn slightly less in 2021, then you’d want to defer income from this year to January 1, 2021. For recurring clients, simply send out invoices a few days/weeks late, or get verbal commitments from new clients and bill them Jan 1.
Hopefully, your revenue and profits are increasingly considerably year-over-year and only the deferred expenses consideration is valid here, but perhaps this year you cashed out on some long-term investments like Tesla stock (lol) or had an unexpected windfall and need to adjust.
This is where you can save BIG, as you can with Accelerated Income and Investments.
Accelerated Income (via “Tax Sales”) and Investments
If you had an epic year, then you may wish to accelerate investments into your business growth. Thinking of joining a mastermind group (wink, wink), hiring someone to design your new website, or buying a new computer / equipment perhaps?
Do so before December 31, 2020 even if you use a credit card to give you another 30 days of “float” before the payments are due out of your account.
If you have the cash, offer to pay upfront for the full amount of a contract to hire that designer or join that mastermind group, and you can even negotiate a discount for payment upfront to both save on 2020 taxes and the overall amount you’d be investing in your business growth through new equipment, education, etc.
On the fringes, pay an extra month (or advance payment for the full year ahead) on any ongoing expenses like offices, contractor payments, utilities, etc. Basically, do the opposite of what we discussed earlier, so that you can use those write-offs in 2020 instead of 2021.
This is why companies like Amazon pay so little in taxes. They just keep making investments in future business growth while also saving on today’s tax bill.
If you are having a less-than-stellar year, but expect a strong bounce back in 2021 (which is the position we are in, at least with top-line revenue because of the pandemic and not being able to hold our typical in-person summits), then you may want to break your back and earn some new contracts before end-of-year, or give clients a discount for paying upfront to owe taxes during a calendar year where you have more write-offs to leverage and/or find yourself in a lower tax bracket.
You can also do an end-of-year “Tax Sale” and offer timely discounts to new clients willing to pre-order products/services and pay you before December 31, 2021.
IMPORTANT - if you are married, consider Deferring or Accelerating your Income and Expenses not only on the performance of your business this year versus your expected figures for 2021, but also with your partner in mind.
Most married people file jointly, and if your partner earned more or less in 2020 than expected in 2021, you can use your write-offs to offset their taxable income (and vice versa). This is especially true if there’s two entrepreneurs in the family.
This was the first year I opened a Health Savings Account (HSA) as I started visiting a chiropractor and wanted to save money on taxes for funds I'd already decided to spend on my health and wellness.
If I wanted to save money on the fringes, I could max out my HSA before December 31 to get additional pre-tax savings while also enjoying the other two tax benefits of that type of retirement account.
Additionally, I could look into establishing and funding a solo 401(k) or other self-employed retirement accounts with pre-tax benefits.
If this was a lackluster year compared to what you expect in years to come, perhaps max out your Roth IRA or accounts dealing with post-tax dollars if you have to choose between which accounts to max out and which ones to wait until January 1 to contribute to.
Again, we’re talking about the fringes of your overall personal and business financials here for most of us.
But, your future wealthy self will thank you.
Charity and 2020-Specific Write-Offs
If you did exceptionally well this year, check out the expanded charitable deductions and other 2020-specific write-offs you can take for your business thanks to the CARES Act passed in late March.
You can deduct more business interest this year, take 100% on “qualified improvement property” if you have real estate, defer employer-side Social Security taxes, receive refundable payroll taxes due to “employee retention” credits.
If you had a bad year in 2018, 2019, or 2020, you can apparently take your Net Operating Losses and carry those losses back up to five years if you have taxes owed on previous years. Additionally, you can take losses from this year and carry them forward to years when you will do better and/or expect tax rates to be higher.
Again, please talk to your accountant ASAP about this. Don’t quote me on any specific tax laws or accounting practices. I’m just sharing some ideas here :).
Another big one…
If you did well this year, and you itemize your charitable contributions, you can receive up to 100% off your adjusted gross income (i.e. after expenses / tax write-offs).
So, you may want to write a big check to charity before December 31.
And if you want to give, but expect to do better in 2021 than this year, give your favorite charities an “I.O.U.” card and promise to cut them that check on Jan 1.
Are You Planning To Buy A Home In The Next 2 Years?
One caveat for entrepreneurs.
Normally, you want to be as tax efficient as possible with your business and minimize your net income.
However, if you’re planning to buy a home, refinance, or something like that, banks will want to see two years of growth on your “Qualifying Income” (i.e. net income, not the top-line revenue number before write-offs and expenses).
Depending on whether you have a spouse to strategize with, you may want to strategically show more income in the two years before buying a home or refinancing, even if it means higher taxes, so that you can get approved for that mortgage when you go to pre-qualify your purchase.
I had to deal with this in Feb 2019 when buying our condo and it was a nightmare.
Again, talk to a pro…
I geek out on personal finance sometimes, and I’d recommend checking out:
Mr. Money Mustache - https://www.mrmoneymustache.com/
I’m also happy to connect you with the amazing team at One Source Accounting who handles our business bookkeeping. Let me know and I’ll make an intro!
Our End-Of-Year “Tax Sale” 😁🙃🥳
You’re in luck!
We are holding an end-of-year “tax sale”, so if you want to sign up for any of the following services with me before December 31, you’ll score an awesome deal.
And, perhaps you can accelerate some investments into your business that will save you even more money when you go to file your tax returns for the 2020 calendar year.
Opportunity #2 - Save $100 on any hourly consulting work if you want to “rent my brain” for an hour or two. Not only is this provided at discount, but I will NOT be offering any hourly consulting or coaching sessions in 2021 as this service is on my “Not To Do” List for 2021. Book now and save!!! 👉 motm.co/consulting
Opportunity #3 - If you want to buy bulk copies (25 or more) of my new book titled How To Build A World-Class Network In Record Time to give as gifts to clients, friends, employees, or anyone else, I’ll give you 20% off or more depending on the number of books you wish to pre-order. The book will be released on January 25, 2021 but paperback copies may take a few more weeks to print and ship depending on your order size. At 100+ books, I’ll throw in a free keynote speech for your clients, friends, or company. Plus, your support during our pre-launch won’t be forgotten!
I know there’s a LOT of info in this post, and less than two weeks to maximize these suggestions, so do your own research, talk to your accounting professional, and let me know how much money you end up saving on your 2020 or 2021 taxes based on some of these ideas.
Plus, you know where to find me if you’re interested in our end-of-year “Tax Sale”.
If I don’t speak with you personally before the end of the year (of course, there’s a few more newsletter emails coming your way before Jan 1), then HAPPY HOLIDAYS!
Jared Kleinert is the founder of Meeting of the Minds (motm.co), as well as a TED speaker, 2x award-winning author, and USA Today's "Most Connected Millennial".
Meeting of the Minds curates "super-connectors" and subject matter experts as invite-only attendees to 3 day summits in places like Napa Valley, Bermuda, and elsewhere, as well as “deep dives” such as this Marketing and Biz Dev strategy & implementation workshop. Members of the MOTM network include CEOs of 7, 8, and 9-figure businesses, creators of globally-recognized brands and social movements, New York Times bestselling authors, founders of pre-IPO tech unicorns, c-suite execs from Fortune 500 companies, and others.
Jared's career began at 15 years old when he started his first company, and took off at 16 while working as the first intern, and then one of the first 10 employees, for an enterprise SaaS company called 15Five, which today has raised over $40M and has almost 2000 forward-thinking companies as monthly recurring clients.
Later, Jared would become a delegate to President Obama's 2013 Global Entrepreneurship Summit in Malaysia, write multiple books including the "#1 Entrepreneurship Book of 2015", and speak at TED@IBM the day before he turned 20.
As a highly-sought after keynote speaker and consultant, Jared’s clients range from organizations like Facebook, Samsung, Bacardi, Estee Lauder, IBM, Cornell, Berkeley, AdAge, and the National Speakers Association. His insights on entrepreneurship, networking, marketing, and business development have been featured in Forbes, TIME, Harvard Business Review, Fortune, NPR, Entrepreneur, Mashable, Fox Business and more.
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