If your business is making money this year, congratulations! Unfortunately, making money also means you have taxes to pay.
Tax planning should not be a one-time activity performed at the end of the financial year. So when is the best time of year to start beginning your tax planning?
Defining your tax planning strategy
With tax rules that change from year to year (and seemingly become more complicated), tax planning can help your company minimize (or even avoid) taxes.
For small and medium-sized business owners, a tax planning strategy is an essential part of your financial plan and can be very valuable for your business.
What’s new in 2018
This past year, Congress passed the Tax Cuts and Jobs Act (TCJA) which will affect every business.
How could this tax legislation impact your business?
If you own a service business or employ consultants who travel to clients, these work-related expenses are no longer deductible. Passing of the TCJA comes the loss of miscellaneous itemized deductions like home office costs, work-related legal fees, and business expenses such as travel costs. This change can negatively impact small businesses because it can encourage employees to seek out roles at larger companies who can afford to cover these costs.
Also new for 2018 is the Sec. 199A business income deduction which provides owners of business entities other than C corporations with a 20 percent deduction on qualified business income. Exclusions include wage earning, investment income, and guaranteed payments. However, this could be a large deduction for many business owners.
Starting your tax planning now will give you the time to find the tax credits and deductions your business can take advantage of.
Tax mistakes to avoid
Failing to have enough cash
One of the most common, and biggest, mistakes we have seen businesses make is not having enough cash in the bank to cover their taxes when they are due. The company may then be assessed penalties, resulting in owing more than your business initially planned for and tapping further into your well.
Failing to report trackable income
Companies that employ or operate as independent contractors must report trackable income. If you have done more than $600 in business for a client, they are obligated to send you a 1099. And since this number also gets sent to the IRS, you are obligated to report it when filing your taxes.
Claiming too many deductions
There is a fine line between maximizing your deductions and going overboard. With the Tax Cuts and Jobs Act, fringe benefits like team outgoings, travel, and work-related entertainment are 100 percent non-deductible. The last thing you want is to owe the IRS more money or pay a penalty for any mistakes.
Get in contact with your tax advisor
If your business does not currently have a tax advisor, now is the time to find one who is well-versed in your industry. Since your taxes can make a financial impact on your business, it’s critical to avoid the wrong advice.
If you have any questions or uncertainties regarding what you should expect from your tax advisor, you should read this.
Contact us today to find out how our services can help your team build a tax planning strategy.