By Debbie Gregory.

Taxes aren’t a fun to deal but incredibly important.  For most businesses, annual tax expenses are often their largest outlay of money annually.  These costs exceed rent or mortgage payments, vehicle expenses, and marketing costs. The recent Tax Cuts and Jobs Act drastically changed a lot of our tax laws, specifically ones for businesses. Below we outline some of the changes and provide you some advice.  Always check everything with your tax professional before taking action.

New Laws, New Rules

The recent Tax Cuts and Jobs Act reduced the tax rates for some small businesses. C Corporations and S Corporations now have a flat tax rate on top of reduced tax rates for individuals. This act also added an array of deductions or credits for offering health insurance, retirement plan contributions, and continued wages during family and medical leave to your employees.

Some other deductions were eliminated or dramatically changed. Prior to the Tax Cuts and Jobs Act, businesses were allowed to deduct the cost of entertainment for their clients. Now, regardless of how relevant, you cannot deduct entertainment and you can only deduct 50% of the cost of any food served (prior to the law you could deduct 100% of all entertainment and food).

Get A Pro

Did you know that new federal, state, and local tax rules occur each year? Not keeping up with all of the changes can really hurt your business. Most small businesses use paid tax professionals to complete their tax returns each year due to the complexity of our tax laws. Unfortunately, given the complexity of the changes by the Tax Cuts and Jobs Act, most paid professionals have been slowly raising their prices because of the added time now needed to complete the new forms and schedules.

Preparing for tax time and actually doing your taxes is a huge drain on a business’s resources. Even if your business uses a professional tax person, there are still a lot of things that must be taken care of by the business before the professional steps in; things like record keeping, meeting and talking with the tax professional, paying for services, checking past returns, and more.

Do Not Lie

Even if your business uses a tax professional, mistakes can still happen which can cost you additional in interest or penalties. You may also be tempted to try to outsmart the IRS, but their computer systems are state of the art and they catch conflicts in returns often.  Honesty is the best policy.

Our Advice

The US tax rules are constantly changing, it is always best to pay attention to taxes all year long (not just at tax time), watch for changes in laws, and always consult a professional for help.

Need more assistance?

The IRS has a lot of information on their website : IRS’s Small Business and Self-Employed Center.

By Debbie Gregory.

Since tax laws are constantly changing, it can be quite challenging for a non-tax professional to stay on top of every change and every possible deduction that is out there. Therefore, many deductions are totally overlooked by most people.

Here are ten of the most common business deductions that are usually forgotten (or simply unknown) when tax time comes around:

1.) Depreciation

It is always a good idea to look over the prior year’s taxes to make certain that you are properly writing off any depreciation of business property. For more information on depreciation please read the IRS publication here : https://www.irs.gov/pub/irs-pdf/p946.pdf

2.) Bad Debt

If you or your business loaned money to someone and you have not been repaid you may be able to deduct that loss from your taxes.

3.) Cancellations

Not everything goes according to plan and often failed plans come with hefty fees. This category refers to things like a business trip that you had booked that you were forced to reschedule. The fees from the airline or hotel that you lost can be deducted.

4.) Bank Fees

If you pay any fees to banks for your business checking account, ordering checks, ATM fees, or any other banking fees you can deduct those fees.

5.) Accounting Fees

If you pay a CPA or tax professional to prepare your taxes every year, that fee you pay to them is deductible on your next year’s taxes. Make sure to check the prior year and get that deductible. Please check with your tax professional as there have been some changes regarding this deduction.

6.) Carryover

Taxes from prior years can occasionally provide you deductions in the current tax year. Carryovers can include items such as capital losses, investment interest, charitable contributions, home office deductions, operating losses, and more. It is always a good idea to re-check prior years when you sit down to do your taxes.

7.) Travel Expenses

Most people know that business travel expenses like car rentals and airfare are all deductible but they often overlook smaller fees that can really add up. Fees such as baggage fees, toll roads, or optional vehicle insurance.

8.) Home Office

Roughly half of all businesses in the US report as home-based businesses and in response, the IRS has created a standard deduction for home office use. If you qualify, don’t forget to grab this deduction. For more on home office deductions please visit the IRS’ website here : https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-deduction

9.) Startup Costs

If you started your business during the year you are filing your taxes, you may qualify for a number of deductions for costs incurred before you even opened your doors. These costs are treated like capital expenditures and are added as an investment in the business. In your first business year, you can deduct up to $5,000 and any remaining costs over that amount are then amortized (up to 15 years).

10.) Miscellaneous Expenses

There are a whole lot of smaller expenses that you can and should deduct on your taxes related to business. Items such as grabbing a cup of coffee with a customer, sending a vendor a thank you gift, and business or trade magazines. It is best to keep a good log of these smaller expenses, along with their receipts. For more on these types of expenses and what you can deduct please take a few minutes to look over the IRS’ web page on this topic here : https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep

If you have any questions, concerns, or a desire to learn about more potential tax breaks for you or your business, it is best to sit down with a certified CPA or tax advisor. You can also go to the IRS’ website (https://www.irs.gov/) at anytime and learn more.

By Debbie Gregory.

Did you know that some tax breaks have a limited life span? Recent changes to the US tax laws have placed an expiration date on certain tax provisions that were originally slated to last longer. If you qualify for any of the following, grab your tax break while you can.

Here are 3 major tax credits that expire December 31, 2019:

1.) Credit for electric powered vehicles

If you purchase an electric-powered vehicle you may be eligible for a tax credit up to $7,500. If the vehicle is being used for business, the business can also claim the tax credit.

2.) Credit for paid family and medical leave

If you own a business and offer your employees paid leave, you may quality for a tax credit. To qualify, you must have a written policy that you provide at least two weeks of paid leave and that you pay at least 50% of wages normally paid to an employee. The credit amount ranges from 12.5% to 25% of wages, depending on what you pay. However, this tax credit only applies to employees that earn less than $72,000 a year.

3.) Work opportunity credit

If you own a business and you are looking to hire some new employees, your business may be able to take a tax credit up to $9,600 as long as the people you hire fall into certain targeted categories.

The targeted groups are as follows:

• Long-term family assistance recipient
• Qualified recipient of Temporary Assistance for Needy Families (TANF)
• Qualified Veteran
• Qualified ex-felon
• Designated community resident
• Vocational rehabilitation referral
• Summer youth employee
• Supplemental Nutrition Assistance Program (SNAP) benefits (food stamps) recipient
• SSI recipient
• Qualified long-term unemployment recipient

To qualify, your business must submit form 8850 (https://www.irs.gov/pub/irs-pdf/f8850.pdf) to your state workforce agency no later than 28 days after the new qualifying employee begins work.

For more information on these tax breaks as well as any others you or your business may qualify for please refer to the IRS website at https://www.irs.gov/.

By Debbie Gregory.

Interest payments on a business line of credit, your business credit cards, and/or your office mortgage are all common business expenses.  They can add up at the end of the year. The interest expenses a business incurs were  fully deductible on business taxes until this year. Recent changes to the way businesses are taxed at the federal level have set new limits on what is allowed to be deducted by a business.

The most drastic, and potentially negative, change is referred to as the “30 percent limit” which, as you can probably guess, caps the amount of interest that you can deduct to 30%. The IRS now classifies all interest expenses incurred by the business as business interest.

The deduction is now calculated after adding these three items together:

• All business interest
• 30% of adjusted taxable income (defined below)
• Financing for any inventory

Adjusted taxable income refers to all income gained and does not take into consideration any losses, operating losses, qualified business income deductions, depreciation, amortization, or depletion in any tax years.

On the up-side any interest that cannot be deducted because of the 30% limited can be carried forward into the succeeding years until it is totally used up.

Some businesses can still deduct the full amount of their interest expenses. Business such as small businesses with less than $25 million in sales, farming businesses, real estate businesses, and utilities.

Rising federal interest rates coupled with these new deduction-limiting laws are going to make an impact on the capital needs of businesses and make borrowing a significantly less attractive option.

Always consult a financial or tax professional if you have questions or concerns about tax law changes and how they will affect you and your business.

By Debbie Gregory.

Whether you are just starting a business or thinking of changing your business structure, a common first step is comparing the types of business structures. While a Limited Liability Company, a C Corporation and an S Corporation share some characteristics, they also have distinct differences. You should spend the time getting familiar with each type before deciding which one might be right for you.

Most small businesses are usually either a sole proprietorship or simple partnership. In both of these cases, the business taxes are part of the individual’s taxes. There are three major types of business entities that classify the business as its own “person”– a C Corporation, an S Corporation, and an LLC (Limited Liability Company).

Some business and certain tax rules are unique to the type of entity that you choose for your business. Read below for more information on each and always check with your accountant.

C Corporations

A C Corporation is taxed at a flat 21% regardless of how much business they conduct or money they make. Additionally, C Corporations help create personal liability protection for the owners of the business. They are designated to the public with extensions such as inc, corp, or ltd.

This type of corporation can issue stocks that when held for more than five years, they entitle the seller to tax-free gains. Raising capital is also very easy for a C Corporation as compared to the other business types because they issue stock in exchange for the funds raised.

The major downside to a C Corporation is double taxation. All business earnings are taxed and paid for by the business however, the income received by the business owners is not deductible and they must claim and pay income taxes on the salary they take from the business on their personal taxes.

C Corporations are separate taxpaying entities and file their own very specific tax forms every year to the IRS.   These C Corporations can actually choose to be taxed as an S Corporation to help offset the double taxation by utilizing income pass-through to the owners, so they report their share on their personal taxes. This way the business and the business owners pay between 10 and 37% depending on the individual.

S Corporations

S Corporations also help create personal liability protection for the owners of the business. They are designated to the public with extensions such as inc, corp, or ltd – the same as C Corporations. An S Corporation also has the ability to allow up to 20% total business income deductions.

S Corporations are required by law to adopt and maintain certain formalities and they have extensive rules in place for how the business can be managed. They include by-laws, operating agreements, issuing stocks, membership shares, holding director and shareholder meetings, keeping meeting minutes and other extensive records.

LLC (Limited Liability Company)

An LLC has many advantages for business owners. As an LLC, you can elect to be taxed at the flat C Corporation rate, which can be very beneficial if the business owner is not qualified to use certain income deductions. This type of business entity also helps you avoid the double taxation issue of the C Corporation as the LLC is taxed a lot more like a sole proprietorship. This type of business also provides you good liability protection and some pass-through taxation, just like the C and S Corporations.

Another benefit of the LLC structure to a startup is that once you have set it up, there is not any need for continual maintenance. It is also easy to add new partners or sell interest in the entity to someone else.   An LLC can have an unlimited number of members whereas S or C Corporations can only have a maximum of 100.

The downside to an LLC is that there is a minimum tax regardless of how much business you conduct. If you make zero dollars or ten thousand dollars you still owe that minimum tax.

The choice of business entity is a complex matter and you need to take into consideration both state and federal tax matters as well as any other issues and non-tax considerations (personal liability protection, raising capital, etc.). As with any major changes to the overall structure of your business, as well as the tax implications of any changes, we highly recommend consulting a tax, financial, and/or business professional before making any changes.