The tail end of tax season is here once again and the deadlines to file taxes for your business are quickly approaching. If you’re an S corporation or partnership, your tax returns are due on March 15. Luckily, this is also the deadline to file for an extension if your business needs to. If your business pays on a quarterly basis, the first 2019 estimated quarterly tax is due in a month on April 15. If you’re a sole proprietor filing Schedule C on your personal tax returns, this deadline is also for you. Corporation tax returns are due on April 15 as well, and if your corporation needs to, you can file for an extension on this day. Stressing out about making these payments? You still have time to ease some of the burden of paying sky high rates. These 12 tips and tax deductions may help ease you worry just a little bit and make paying your business’ taxes this year, a little less stressful.
1. Qualified Business Income Deduction
The Tax Cuts and Jobs Act of 2017 made sweeping changes to the tax code, much to the relief of many small business owners. Also known as the pass-through deduction, the qualified business income deduction allows for a 20 percent deduction if you are a sole proprietor, single-member LLC, S Corporation or partnership. If your business makes less than $315,000 you can take the full 20 percent deduction before you itemize other deductions. Businesses making over this amount can still get a partial deduction, but the amount decreases after $315,000 and is zero if you make over $415,000. To be qualified, you as a business owner must have also taken standard reasonable compensation, meaning, a pay similar to what someone else would be paid for the same job. Although you can’t invest in anything new now to increase the size of your 2018 deduction, there are things you can do to stay under the $315,000 maximum. For instance, you can now depreciate the total cost of property that meets certain requirements, in the same year you bought it. You can read more about this new tax deduction on the IRS website.
2. Contributions from your Individual Retirement Account
You still have time to make contributions to an Individual Retirement Account to take advantage of another tax deduction before April 15 rolls around. Small business owners often think that retirement plans may only benefit larger companies. However, a retirement plan is a type of pension, so the defined benefit plan might be your best choice if your business has a small staff. Additionally, as compared to a 401K(k) plan:
- you don’t have to add to IRA’s before the end of the year to get deductions from your 2018 income
- a retirement plan is probably the way to go for a smaller business because you’ll save much more as a business owner for retirement than a traditional 401(k) and qualify for more tax savings.
The Business Vehicle Deduction
If you didn’t know already, there’s several ways you can get some money back for for all of that wear and tear you put on your vehicle on that two hour long commute to work. You can either add up how much you’ve spent on maintenance, fuel and related costs or you can add up the the total number of miles you drove for business related trips and get what's called a “standard mileage deduction” for whatever that total comes out to. Be sure to keep a detailed and thorough record of your mileage because in order to claim these expenses you need documented proof (receipts, invoices, etc). Currently, you can deduct 54.5 cents per mile driven for business related purposes even if it’s your own car, which can save a good deal of money on taxes so don’t forget to mark down your miles!
More information on the business vehicle deduction here.
4. Home Office Deduction
If you work from home, well you’re in luck, because you may qualify for the home office deduction. The rule to qualify says that you must have an area in your house that you’ve assigned as your office space, used exclusively for work. You must use this space on a daily basis for only business related reasons, i.e. you can’t just say you use your bedroom as a home office. If you have a designated home office you are also able to deduct part of you home’s utilities, homeowner insurance and costs for general maintenance. You can use two methods to calculate your home office deduction: the simplified or regular method.
Simplified method: Using this method to calculate how much of a tax deduction you get for using your home office, you multiply the total square footage of your office by a fixed rate of $5 per square foot (for up to 300 square feet). So if your home office is 200 square feet, multiply that number by $5 and you’d be able to deduct $1,000.
Regular method: Using the regular method, you have to add up the actual expenses for using your home office. These costs may include mortgage interest, insurance, utilities, repairs and depreciation. When using this method, tax deductions are based off of what percent of your home is used for business. So for example, if you use one room of your house as your designated home office, you basically need to calculate the percentage of your home you use for business related activities.
The simplified method tends to work better for single-room offices and smaller workspaces. The regular method is better to use when your business takes up a larger percentage of your home.
If making monthly rent payments are still causing a great deal of stress for you, consider applying for a Merchant Cash Advance, or MCA, through our team at Wide Merchant Group. This could help alleviate a little bit of the tax stressing while helping to grow your business by providing you with the necessary funds to make the changes and improvements you need.
Suggested Article: 10 Ways to Grow Your Business With Merchant Cash Advance
5. New Low Corporate Tax Rates
Starting at the beginning of this tax season, the corporate tax fell from 35 percent to 21 percent which will stay in effect past 2025 when some of the new changes in the tax law will end. As a small business, you may benefit from the lower tax rate. The corporate Alternative Minimum Tax, or AMT, was also done away with which may give you even more tax savings as a small business owner.
6. Meal Expenses
The IRS changed some rules this year in regard to entertainment expense deductions. Previously (prior to 2018), you could deduct up to half of expenses related to entertainment that you spent as a business. Even though business owners may no longer deduct for entertainment related expenses, you can deduct up to 50 percent of the cost of meals related to business as long as you the owner or one of your employees is present during the meal and the food or drinks purchased aren’t anything too fancy. The meals can also be purchased for current or future customers or clients. However, you can still get some money back for food you eat while at recreational events your business attends. If you get food or drinks during entertainment events, they won’t be considered entertainment as long as you buy them before attending the event. So for example, if you take your office to an amusement park for a day but you bought sandwiches at a deli before the park, you could expense the sandwiches and receive a deduction for that amount.
7. Section 179 Tax Deduction
A huge change in 2018 tax reform law allows you, as a small business owner, to now write off double the expenses of qualifying purchases you make for your business. You can now expense equipment up to $1 million. Before this, you could only deduct $500,000 for certain purchases. These purchases include vehicles, equipment, machinery and computers. With this new incredibly high tax deduction, now is the right time to consider upgrading any equipment or technology in your business or any other big purchases you’ve been pushing off due to monetary constraints. This is another case where an MCA could help you even more, as it is a simple process to get more funding you might need to upgrade your offices space to draw in even more customers.
8. Full Bonus Depreciation Write-Offs
If you’ve purchased certain products for your business after September 27, 201,7 you may have a chance to qualify for a full deduction for the cost of these items. Machinery, equipment, computers, appliances and furniture are common goods that qualify for this massive tax break. The purchases must have been after the 27 and you must have started to use them after this date as well. If you bought trucks or any SUVs to use for related business, the full cost of these vehicles may also qualify as part of the write-off.
9. Use a Different Accounting Method
As a small business owner, it might benefit you to switch up your method of accounting for your business. Going from an accrual to cash basis or the other way around, can lower your taxes by a good amount. And it doesn’t matter what method you used the prior year, you can switch in either direction this year. If your gross earnings are less than $25 million, you are able to change your accounting method this year. Here’s the main difference between the two methods: the point at which sales and purchases register in your account. With accrual, expenses are recorded when they get billed but not paid and when profit is earned. A cash basis notes profits and expenses when money is actually exchanged by hand. By switching your accounting method, your taxable income will be reduced in 2018.
11. Consider Registering as an LLC
If you’re currently a sole proprietor you might find some significant tax benefits by becoming an LLC since the new tax law was passed you may be able to eliminate some of the self-employment taxes as an LLC because you are able to structure your business taxes in different ways. This is actually not a difficult process and just requires you submit the correct paperwork and follow the appropriate forms. You will need to get a new tax ID number and contact your Secretary of State for the right forms. There are a few rules you must be sure you follow when converting, which include keeping personal bank accounts, credit cards and loans separate from your LLC’s accounts. Make sure you are aware of your state’s regulations you have to meet and follow the specific filing requirements and meet the time limits to ensure a successful transfer and you’re on the way to saving even more on taxes!
12. Pay Attention to IRC Section 170(e)(3)
If you are a C corporation and sell really any type of good, then you definitely want to be aware of this section of the Internal Revenue Code which offers some very large and lesser known tax benefits. With this tax code you can take any unused inventory or a surplus of inventory into a tax deduction. This section of the IRC is a little known secret that can help C corporations ease the burden of taxes by finding a great use for untouched inventory.
As you can see, there are many different ways you can still save some much needed tax dollars before those deadlines approach, and many of them are quick and easy changes that can save you thousands of dollars. This tax season, spend less time worrying about paying large sums of money and put more attention on growing your business. For example, maybe focus new ways on reaching your customers, as well as future ones, based on the top marketing trends of the year. There are many easy, free and simple ways to do this and we cover them in our article on the 14 Top Market Trends to Follow to Grow Your Business in 2019. There are many easy and free ways to At Wide Merchant Group, we don’t want you to be more stressed than you need to and are ready to provide you with the funding you need to grow your business.
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