Tax Tips for Small Businesses
National Association of Enrolled Agents offers tips to help small businesses adapt to new tax laws
WASHINGTON, D.C., May 2, 2018 — Small businesses face a significant challenge in adapting to provisions included in the Tax Cuts and Jobs Act (TCJA). As IRS asks Congress for more resources to help implement the most sweeping tax reform in decades, the National Association of Enrolled Agents (NAEA) offers the following small business tax tips to coincide with national Small Business Week.
Consider Changes to Your Business’s Tax Structure in Light of Tax Reform
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. If you are a sole proprietorship, a partner in a partnership, a member in an LLC or LLP, or an owner of an S corporation, then you may qualify for this valuable tax break.
However, to maximize the pass-through deduction, the new law may require you to change the tax structure of your business. For example, some sole proprietors may need to become an S corporation to maximize their tax savings under the new law. 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.
“If this sounds confusing, that’s because it is,” said NAEA President James Adelman, EA. “Hire a tax professional, such as an enrolled agent, to help you choose or adjust the tax structure to best fit the needs of your business. You can find a qualified tax professional near you easily by visiting eaTax.org, a free online directory of enrolled agents.”
Expense Big-Ticket Asset Purchases
The TCJA, signed into law in December 2017, extended 100 percent bonus depreciation for many assets through 2022. This means you can write off the entire cost of the asset in the year that you put the asset into use in your business. The TCJA also accelerated your ability to expense the purchase of a new business vehicle, so now may be a good time to consider that option.
Beware: Some Business Expenses Are No Longer Deductible
The new tax laws limit or eliminate tax deductions for some expenses, and you will want to minimize those. For example, you can only deduct 50 percent of the cost of most of your meal expenses, and tax reform completely eliminated any deduction for entertainment expenses starting in 2018. That means that while you may be able to deduct half the cost of a business meal where you are entertaining a client, you are no longer able to deduct the cost of treating that client to a baseball game or a concert—at least for now.
Keep Good Books and Records
Without good books and records, you are likely paying extra in taxes due to missing tax deductions and other tax benefits to which you are entitled. Consider hiring a bookkeeper, if necessary, to manage that process for you. 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 your business tax return. Consult with an enrolled agent regularly as your business grows or changes so she/he may help you maximize your tax decisions and determine which records to keep.
Make Your Quarterly Estimated Tax Payments (If Required)
All taxpayers are required to pre-pay their income tax bill. If you are a sole proprietor or a partner in a partnership, then you likely need to make quarterly estimated tax payments to pre-pay your 2018 tax bill. Your first installment was due on April 17, 2018, and the remaining quarterly payments are due on June 15, 2018, September 17, 2018, and January 15, 2019. Failure to make your payments can lead to penalties and a large tax bill you might not be able to pay, so timely estimated payments should be your first priority. Your enrolled agent can assist in determining the amount of each estimated payment to minimize the possibility of any underpayment penalty.