FOUR TAX TIPS FOR SMALL BUSINESSES
FOUR TAX TIPS FOR SMALL BUSINESSES
The New Tax Law – Much to Applaud by Small Business
Here we are better than halfway through the 2018 tax year and small businesses have much to be happy about as a result of the Tax Cuts and Jobs Act (TCJA). That said, while there is much to applaud, there is also much to be aware of as we approach the upcoming tax season. In this article we’ll touch on some of the highlights plus 4 key tax tips for small businesses.
Tax Changes and Net Effect on Small Businesses
Of course the biggest news was the dramatic reduction in taxes for both pass-through and corporate entities. Some taxes were reduced permanently for corporations and through 2025 for pass-through businesses.
Pass-Through Businesses: The one provision that is the object of the most discussion is the 20 percent deduction for so-called pass-through businesses, i.e. enterprises’ income that is taxed on the firm-owners’ personal tax return. These entities include partners in partnerships, shareholders in S corporations, members of limited liability companies (LLCs) and sole proprietors. Notably, this provision has far-reaching positive implications as about 95 percent of U.S. businesses are pass-through entities.
All taxpayers who earn less than $157,500 and file singly ($315,000 for a married couple) can now deduct from their overall taxable income 20% of the income they receive via pass-through businesses.
Note: The only limitation is on some service-based firms making more than the above income thresholds.
Corporations: The corporate tax rate is now 21 percent … a significant saving from the former 35 percent rate. Additionally, the Alternative Minimum Corporate Tax has been scrapped starting in 2018. In combination, this should have a positive effect on both capital formation and job creation.
First Year Bonus Depreciation: This is major for businesses that make eligible equipment and property purchases. The cost of these purchases may now be deducted 100 percent in the year made … up from 50 percent in past years. The incentive should result in the purchase of vehicles, computers and equipment that will further accelerate business growth and employment.
Transportation and Entertainment: Often offered as employee perks, tax-free employee commuter plans and reduced-rate entertainment plans will no longer be tax deductible expenses to employers. These fringe benefits may still be offered, but the expense deduction has been eliminated.
Tips
Deadlines: Keep these dates in mind:
- S-corporations – file business taxes by March 15.
- 2018 tax returns due April 15, 2019.
- Quarterly estimated tax deadlines are April 17, June 15, September 17 and January 15.
Taxes – Not a One-Time Event: Keep in mind that tax planning is a year-round process, not a one-time event at tax time. Maintain top-of-mind awareness regarding your tax situation.
Be Alert to Tax Law Changes: Even when working with a tax professional, make an effort to keep abreast of tax news. This will enrich your partnership with your tax preparer and potentially save you considerable tax dollars.
Ignore Taxes as Your Primary Decision Driver: Make your business decisions based on the best course of action for your enterprise. And never make your company judgments betting that reported tax breaks will be enacted.
Do It Yourself (DIY) is “Chancy”
OK. The above is by no means a full rendition of all there is to know about the TCJA and small businesses. The net effects for small businesses are generally positive … but with enough twists and turns that really point to finding a tax pro that specializes in small business taxes.
If you choose a DIY path in monitoring your company’s tax status, here are a couple of resources that may help.
- The U.S. Small Business Administration maintains a guide on navigating the tax code and staying up to date on your tax responsibilities as a business owner. Click here for more information.
- The IRS also maintains its own information center on self-employed and small business taxes. You can find the guide here.
Alternatively, if DIY does not appeal to you or appears risky …
Pearson & Co. stands ready to help. Call or email … we’ll respond promptly.
