Small business taxes can be complicated, especially if the business owner lacks knowledge of small business tax obligations. There is a lot of paperwork involved and the cost of mistakes can be high if you pay less than you owe and become subject to penalties and an audit. Small business owners should consider tax preparation and assistance from a local CPA if they do not understand their tax obligations.
The good news is there are steps you can take to try and keep your tax costs down and make sure you are filing all the paperwork properly and on time. In fact, small business tax preparation should be a year-long effort- not just something you throw together a month before tax day. We have compiled a list of some tax tips that could make the tax preparation process much easier.
1.Create a smart plan for paying taxes
The sooner you are aware of your business’s general outlook for the tax year, the better prepared you are to prevent cash flow disruptions. 82% of small businesses fail due to cash flow problems, so you want to be sure your small business is able to pay taxes without completely disrupting cash flow. You can do this by either putting aside money or arranging for a line of credit to pay the IRS.
A local CPA or accountant can advise you whether you would be better off paying quarterly estimated taxes allowing you to distribute the tax burden throughout the year instead of having to find the cash for large tax payment in April. It should also be noted that your business may need to pay estimated taxes anyways throughout the year to avoid interest and avoid incurring penalties from the IRS.
2. Take advantage of tax-advantaged savings accounts
An excellent way to save on your taxes is to invest in accounts that help secure your future. Small businesses should consider 401(k) accounts, an IRA, and a health savings account (HSA)
You are eligible to contribute to your 401(k) if you have a workplace plan or if you are self-employed and open a solo 401(k). You are eligible to make tax-deductible contributions to an IRA if your income is below a certain limit or if neither you nor your spouse has a retirement plan at work. You can contribute to a health savings account if you have a qualifying high- deductible health plan.
Once the money is contributed to your 401(k) or IRA, it will need to stay there until you reach retirement age and begin making withdrawals. If you withdrawal before retirement age you will incur a 10% penalty. HSA funds can be withdrawn tax-free at any time if used to pay for qualifying healthcare expenses. You can also withdraw these funds without penalty for any purpose after reaching the age of 65, but you are required to pay tax on withdrawals if they are not used for medical purposes.
Contribution limits do change annually for the type of accounts we discussed above. You are eligible to make contributions as late as tax day for the relevant tax year. By contributing to a 401(k), IRA, or health savings account you can achieve significant tax savings while also helping ensure you have the money you need in the future.
3. Take advantage of larger deductions for equipment
These deductions are intended for small businesses. If you are buying new or used equipment for your company, you could be entitled to a federal tax deduction of up to $1 million, which is nearly double last years at $510,000. Since these deductions are intended for small businesses, they start to phase out at spending amounts starting at $2,500,000 (up from last year’s $2,030,000), ending above $3,500,000 (up from $2,540,000).
In addition, businesses can take a 100% bonus depreciation deduction on certain kinds of equipment bought and placed in service after September 27, 2017 (up from 50%). Also new: that deduction applies to purchases of used as well as new equipment. And under the new law, companies can also claim a 40% bonus depreciation deduction for certain kinds of equipment purchased before September 28, 2017, and placed in service during 2018.
4. Contribute to charity
Does doing something good make you feel good? For many people, the answer is “yes.” The charitable donation deduction allows you to lower your taxable income for donations or gifts to qualified, tax-exempt organizations. To get the deduction, you must file Form 1040, the form you use for an individual or joint income tax return. You also must itemize your deductions on Schedule A on Form 1040.
If you choose to itemize your deductions for the 2018 tax year, there are still rules around what you can and can’t deduct — and how much — when it comes to charitable donations. Understanding these requirements could help you maximize your deductions and lower your taxable income.
5. Don’t wait until the last minute to start the process
Filling out tax paperwork can be tedious and takes times. You do not want to wait until the last minute to fill out paperwork since this is when mistakes happen and missed deductions. Tax preparation for small business should be a year-round effort to ensure maximum savings and no errors. If you fail to file your taxes on time, you could incur a big penalty that starts accruing the day after you miss the deadline. Start completing your forms early so you don’t have to scramble or worry.
6. Call on a tax expert to find the help you need
If you are unsure where to start or how to maximize your tax savings, that’s ok! It will greatly benefit you to either use tax software that can guide you through the process or call a local tax professional to assist you with filing.
Limitless Investment and Capital small business tax preparation and assistance services
While running a small business, every penny counts. The new tax reform law increases both the complexity and potential opportunity in your tax planning. Limitless Investment and Capital leverages its deep tax and industry experience to look in broad scope and great detail at your business so you can navigate the changing path ahead. Your small business may have the ability to minimize taxes which could be the difference between profitability and just scraping by. Don’t pay more taxes than you owe and hire an expert from Limitless Investment and Capital.