Filing taxes for your local business? Planning ahead for 2018? Curious how the new tax law signed late last year, the Tax Cuts and Jobs Act (TCJA), will affect your business? Here are our 8 best small business tax tips to get you started on the right track.
1. Know the deadlines.
When it comes to actually filing your taxes, deadlines for small businesses differ from the deadline for individuals. (They can’t make it easy, can they?) So if you want to stay on the “up and up” with our friends at the Internal Revenue Service (IRS), pay close attention to these dates. If you fail to meet these deadlines, you’ll find yourself subject to penalties when you do get around to filing your annual return.
Deadlines vary based on the type of business you run.
- Partnerships and S-Corporations – March 15
- C-Corporations and individuals – April 17
- Exempt organizations (like charities) – May 15
Some small businesses file quarterly or at odd dates based on the unique industry you’re in. If you’ve been advised these dates may apply to you, take note of special federal due dates by month. Wherever you fall, this topped our list of small business tax tips. So know your applicable deadlines, and put them in your calendar as soon as possible.
2. Decide if you need an extension.
The IRS isn’t totally cruel. For those who think they need a little more time, they offer an extension on the deadlines mentioned above. But extensions aren’t for everyone. Let’s compare the risk versus the reward.
The risk: If you anticipate you might miss your deadline or if you’re worried you might make errors or mistakes when filing, you should file an extension.
The reward: You’ll avoid penalties you may have incurred by meeting the deadline but missing critical information or filing incorrectly.
Forms you’ll need:
- Partnerships, S-Corporations, and C-Corporations – Form 7004
- Individuals – Form 4868
- Exempt organizations – Form 8868
3. Know what’s deductible.
When you’re ready to file, individuals and business owners alike usually start with the same question. “Exactly what can I deduct?”
According to the IRS, self-employed individuals can deduct expenses that are “ordinary” and “necessary.”
Here’s what that means.
- Ordinary – An expense that is common and accepted in your trade or business
- Necessary – An expense that’s helpful and appropriate for your trade or business
So whether you’ve just started your business or have simply slept a few times since the last time you’ve filed your taxes, don’t forget that, on the whole, money you spend to run your business is deductible. Keep track of these expenses throughout the year, and file away receipts for items which you intend to deduct.
- Recruitment and hiring costs
- Back office expenses like legal and accounting fees
- Technology like computers, mobile devices or POS systems
- Certifications, licenses or dues
- Rent and maintenance for a storefront
4. Know when it’s OK to deduct home expenses.
Here’s where it gets a little tricky. Do you work from home?
If so, you can deduct specific home expenses that apply to your business. Aside from what we listed above, additional home office expenses include things like:
- Mortgage interest
- Home repairs
- Depreciation of your home
But be careful. If you intend to deduct home expenses, make sure you have a dedicated home office or part of your home that’s exclusively used for business purposes. Then, ensure you conduct a majority of your business activities from this place.
5. Get to know the new rates.
There’s been a lot of speculation over what the newest tax changes will mean for local business owners and those who are self-employed. Here’s a quick rundown of what they’ll mean for you.
- In 2017, the tax rates for C-Corporations ranged anywhere from 15% to 39%. In 2018, C-Corporations will see a flat tax rate of 21%.
- Sole proprietorships, partnerships, limited liability companies and S-Corporations will claim a 20% deduction of their pass-through income (with some limitations of course). Some service businesses may not be able to enjoy this deduction once income exceeds a threshold amount.
6. Consider contributing more to your retirement savings.
In 2018, the amount you can contribute to retirement pre-tax has increased. Small business owners will be able to contribute $18,500, up $500 from the $18,000 limit in 2017.
And get this: If you’re over 50, you may know you qualify for “catch-up” contributions. The increase applied to you as well. You’ll be able to contribute an extra $500 annually, or $24,500 per year, up from $24,000 in 2017.
The increase applies to these plan types:
- 457 plans
7. Think about depreciation.
If you’ve ever purchased big-ticket items for your business, you probably are already aware of how you expense these assets. The short and sweet of it: If the asset has an expected lifetime use of more than a year, you must depreciate the cost of it over several years, not just in the year you’ve purchased it.
For 2017, businesses can claim immediate 50% bonus depreciation on the cost of all equipment acquired and put in service during the tax year. For 2018, bonus depreciation will phase down to 40%.
What does this mean for you? You used to be able to write items off more quickly, since you could claim depreciation at a higher rate. Now, it may take a little longer for these assets to depreciate in the eyes of the IRS. That means it’ll take you longer to expense them. If you’re sensitive to this, you may want to become more price conscious in your purchasing of any large assets this year.
8. Always consult a professional.
Even if you feel you have a good grasp on your tax situation, it’s always best to check in with your accountant before making any new or different financial decisions for your business. No advice you find online should substitute or replace that of a licensed professional (even these small business tax tips).