Small businesses struggling to decipher the Tax Cuts and Jobs Act can make use of these five tips from the National Association of Enrolled Agents (NAEA).
1. Should You Change Your Business Tax Structure?
The new law created a 20 percent tax deduction for owners of certain pass-through businesses (those in which business profits flow to owners to be taxed under the individual income tax). Sole proprietors, business partners, owners of S corporations or members in a limited liability company or limited liability partnership may qualify for this tax break.
But to make the most of the pass-through deduction, business owners may have to change the tax structure of their operation. Some sole proprietors, for example, may need to become S corporations to maximize their tax savings, the NAEA states.
The fact that the IRS hasn’t yet issued guidance on this aspect of the law makes it tougher for small businesses to figure out who qualifies for structure change.
2. Expense Purchases of Costly Assets
The tax law allows 100 % bonus depreciation for many assets through 2022. That allows business owners to write off the entire cost of the asset in the year it was put into use.
The law also accelerates the ability to expense the purchase of a new business vehicle.
3. Some Business Expenses Won’t Be Deductible
Under the new law, business owners can only deduct 50% of the cost of most meals, and the law totally eliminates deductions for entertainment expenses. So, business owners may be able to deduct half the cost of a business meal with a client but they can’t deduct the cost of taking the client to a baseball game or a concert—at least for now.
4. Keep Meticulous Books and Records
Lousy bookkeeping can mean paying more taxes than necessary on missed deductions and other benefits. Consider hiring a bookkeeper, because inaccurate tax returns could lead to IRS penalties after an audit.
5. Make Quarterly Estimated Tax Payments
Sole proprietors or partners in a partnership will likely need to make quarterly estimated tax payments to pre-pay the 2018 tax bill. The first payment was due April 17; the rest are due June 15, Sept. 17 and Jan. 15, 2019.
Failure to make the payments can bring penalties and a tax bill you may not be able to pay.
Got questions? Keep in mind that the IRS itself has asked legislators for more resources in implementing the new law.
A free online directory of enrolled agents is available at eaTax.org.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.