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The Tax Cuts and Jobs Act & Small Business Taxes

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By Debbie Gregory.

LinkedIN Debbie Gregory VAMBOA VAMBOA Facebook VAMBOA Twitter

 

 

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.

Commonly Overlooked Business Deductions

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By Debbie Gregory.

LinkedIN Debbie Gregory VAMBOA VAMBOA Facebook VAMBOA Twitter

 

 

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.

2019 Time Sensitive Tax Breaks

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Time Sensitive Tax Breaks

 

By Debbie Gregory.

LinkedIN Debbie Gregory VAMBOA VAMBOA Facebook VAMBOA Twitter

 

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/.

The IRS Dirty Dozen

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IRS Dirty Dozen

By Debbie Gregory.

LinkedIN Debbie Gregory VAMBOA VAMBOA Facebook VAMBOA Twitter

What does the IRS have to say?

Every year the IRS releases a list of the most common taxpayer scams to help the general public identify and hopefully avoid falling victim to. The following is the list for 2019.

 

The IRS’ “Dirty Dozen” worst scams for 2019 (grabbed right from the IRS’ website):

  • Abusive tax shelters, trusts, and conservation easements – See IR-2019-47
  • Frivolous tax arguments – See IR-2019-45
  • Failure to report offshore funds – See IR-2019-43
  • Improper claims for business credits – See IR-2019-42
  • Scams involving disasters and charitable causes – See IR-2019-39
  • Inflating deductions and/or credits – See IR-2019-36
  • Falsifying income and/or creating bogus documents – See IR-2019-35
  • Promises of inflated tax refunds – See IR-2019-33
  • Tax return preparer fraud – See IR-2019-32
  • Identity theft – See IR-2019-30
  • Phone scams – See IR-2019-28
  • Pervasive phishing schemes –  See IR-2019-26

 

The IRS also has a quick intro video about the Dirty Dozen list:

 

For more information or to read the full text on any of the Dirty Dozen listed above, check out the official IRS website:

https://www.irs.gov/

 

VAMBOA, the Veterans and Military Business Owners Association encourages its members and supporters to be on the alert and protect all of your information.

Research & Development Tax Credits

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By Debbie Gregory.

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Governments typically incentivize private industry to produce research and development (R&D) as a strategic tool to advance their economies. The United States government also does so. The  Research & Experimentation Tax Credit (R&D Tax Credit) was first introduced in 1981 as a two-year incentive, and has remained part of the tax code ever since.

The rules of the Research & Development Tax Credit can be found under Internal Revenue Code (IRC) section 41 and the related regulations. The R&D tax credit may apply to any taxpayer that incurs expenses for performing Qualified Research Activities (QRA) on American soil.

It’s not only high-tech or life sciences companies with dedicated research departments that qualify for the R&D tax credit. Some other common industries that qualify include, but are not limited to:

  • Aerospace & Defense
  • Architecture
  • Automobile
  • Chemical & Formula
  • Engineering
  • Environmental
  • Food Science
  • Foundries
  • Life Sciences & Pharmaceutical
  • Machining
  • Manufacturing & Fabrication
  • Software Development
  • Tool & Die Casting

To qualify, you must be able to prove that the activities rely on are hard science, such as engineering, computer science, biological science, or physical science;  that they relate to the development of a new or improved business component; and that your activities constitute a process of experimentation involving testing and evaluation of alternatives to eliminate technological uncertainty.

The potential R&D credit benefits include a dollar-for-dollar reduction in your federal and state income tax liability; improved cash flow; look back studies that recognize unclaimed credits for open tax years(generally for three or four years); and up to 13.5 cents of R&D tax credit for every qualified dollar spent.

Whether you’ve already filed your return or filed an extension, the R&D credit is a powerful tool to help lower your tax rates. If you are uncertain as to whether you qualify for the R&D tax credit, there are numerous professionals that can guide you through the process.

 

Veteran and Military Business Owners Association, VAMBOA.

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