The Tax Cuts and Jobs has many people paying more attention to their tax situation, but the fact is that taxes for small businesses are always a complicated subject, and require constant attention.
With that in mind, the National Association of Enrolled Agents put together a short list of great advice for small-business owners to help them stay on top of both the changes brought by reform and the perennial tax burdens they always face.
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1. Consider restructuring
Tax reform created a new 20 percent tax deduction for owners of certain pass-through businesses. A pass-through business is one in which profits from the business flow to their owners to be taxed under the individual income tax. Sole proprietors, partners in a partnership, members in an LLC or LLP, or owners of S corporations may qualify for this valuable tax break.
However, to maximize the deduction, the new law may require the owner to change the tax structure of their business. For example, some sole proprietors may need to become an S corporation to maximize their tax savings under the new law.
“If this sounds confusing, that’s because it is,” said NAEA president James Adelman, particularly since the IRS has not issued guidance yet on this provision of the law, making it difficult for small businesses to determine who might be eligible.
2. Expense big-ticket asset purchases
The TCJA, signed into law last December, extended 100 percent bonus depreciation for many assets through 2022. This means businesses can write off the entire cost of the asset in the year that it was put into use in the business. The TCJA also accelerated the ability to expense the purchase of a new business vehicle, so now may be a good time to consider that option.
3. Beware: Some expenses are no longer deductible
The new tax laws limit or eliminate tax deductions for some expenses, and businesses will want to minimize those. For example, businesses can only deduct 50 percent of the cost of most meal expenses, and tax reform completely eliminated any deduction for entertainment expenses starting in 2018. That means that while the business may be able to deduct half the cost of a business meal where they are entertaining a client, they are no longer able to deduct the cost of treating that client to a baseball game or a concert — at least for now.
4. Keep good books and records
Without good books and records, business owners will likely paying extra in taxes due to missing tax deductions and other tax benefits to which you are entitled. They should consider hiring a bookkeeper, if necessary, to manage that process for them. The investment may pay off in the long term.
Accurate books and records lead to an accurate tax return. Inaccurate tax returns could lead to stiff penalties if the IRS decides to audit the business tax return.
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5. Make quarterly estimated payments
Sole proprietors or partners in partnership likely need to make quarterly estimated tax payments to pre-pay their 2018 tax bill. Their first installment was due on April 17, and the remaining quarterly payments are due on June 15, 2018, Sept. 17, 2018, and Jan. 15, 2019.
Failure to make payments can lead to penalties and a large tax bill, so timely estimated payments should be a high priority.