As if taxes aren’t scary and complicated enough, we now have a brand new tax law to learn. As 2018 comes to a close, there are things you can do to plan for your 2018 taxes and potentially save your business tons of cash and yourself some headaches.
Here are 5 tips in preparing for your 2018 business taxes.
The first thing to do to prepare for your 2018 taxes is to get your numbers and accounts in order. Run your primary financial reports, including the Profit and Loss Statement, Balance Sheet, and Statement of Cash Flows. These will provide a snapshot of your financial situation and all the information you need to make key decisions described below.
You’ll also want to reconcile your accounts. This will present any bills from vendors and suppliers that need to be paid, as well as any open invoices from your own customers. Work on closing those out. Additionally, you’ll make sure that any applications (like our Back Office System) are synced up with your other applications. These might include bank accounts, invoices, mileage reports, etc.
Prepare your tax documents. You’ll need to get 1099s and W2s out early in 2019, so get these ready. You don’t want to drop the ball on either of these, so early preparation will save you big headaches in January.
Depending on your business entity, cash sitting in an account can show up as pass-through, taxable profits. Therefore, managing this properly can save you on your 2018 tax bill, and it will help you run a tighter ship. Consider these end-of-year cash flow management decisions:
- Defer income: You may be able to defer income and associated taxes into the new year for any business coming towards the end of the 2018.
- Accelerate Expenses: If you can pull expenses from 2019 into 2018, you’ll reduce cash and taxes. Many businesses will choose to pay monthly service fees annually, at the end of the year.
- Inventory and Equipment: With enough cash on hand, you might choose to take tax breaks in acquiring capital equipment or inventory. Talk to your tax advisor.
- Bonuses: Bonuses are a great way to manage compensation plans, but they can also be used to affect your tax bill. Determine if you want to pay them out in 2018 or or 2019.
Read more: 5 Ways to Finish 2018 with a Bang!
The New Tax Law
There has been a lot of talk this year about the new tax law, the Tax Cuts and Job Act of 2017 affected 2018 tax codes. Here are some highlights that small businesses should be aware of:
- New Tax Dates:
- Pass-through, Schedule C entities: April 15, 2019
- Partnerships and S corporations: March 15, 2019
- C corporations; April 17, 2019
- New Tax Rates: Corporate Tax rate was dropped from 35% to 21%. Talk to your tax advisor about your business entity. There may be a change needed.
- Business Mileage: 54.5 cents per business mile
- Pass-through Deduction: Owners of LLCs and Sole Proprietorships may be eligible for a 20% deduction on ‘pass-through’ income.
- Personal Income Tax Rates: Personal income tax rates have changed, with many brackets being reduced.
- Interest Deductions: These are limited to 30% of EBITDA. EBITDA? Talk to your tax consultant.
Know Your Deductions
We mentioned EBITDA above. EBITDA stands for Earnings BEFORE Interest, Taxes, Depreciation and Amortization. EBITDA boils down to net income with those deductions added back in. However, they can play a big role in your business taxes.
- Depreciation: Deduct depreciation on any capital purchases made. Each type of equipment has a deduction schedule. This can now include improvements to property and investments in other improvements, such as HVAC, rooting, fire protection, etc. See the IRS site for more info.
- Interest: Deduct any interest paid on business loans.
- Amortization: This is like depreciation but for intangible property. Examples include patents, trademarks, and goodwill.
- Taxes: While your personal and self-employment taxes are not deductible, you can write off your licenses, regulatory fees, taxes on real estate and personal property, as well as the employer portion of FICA, FUTA, and state unemployment taxes.
Schedule a meeting with your tax planner
Reviewing all of these tips with your tax planner will mostly likely have a huge benefit to your tax bills. With new tax laws, a review of your business formation, and a full review of your financial reports, you could save your business a significant amount of money and save yourself some real headaches and stress by having a tax professional do this for you. Being compliant and saving money on taxes are part of running a successful business.
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