Small business owner?? 

Good News for 2018!

Section 199A of the new tax code lets you claim a deduction against your IRS 1040 taxable income of 20%These new rules can really put big money in your pocket. But there is a lot of fine print, limitations, rules, and no, you will not be able to file for this deduction on a post card.  Sorry.

 1.    Do you qualify for the new 20% write-off? You’re in luck if you operate your business as a sole proprietorship, partnership, or S corporation. To qualify for the deduction you need taxable income below a certain dollar ceiling. Lets discuss specifics for your small business.

2.    What is “qualified business income”? Qualified business income refers to the  net of qualified items of income, gain, deduction, and loss, from your qualified trades or businesses. The definition in neither simple nor easy. Some significant limitations apply so I strongly suggest we talk.

3.    What if you exceed the income limits? There are ways you can benefit even if the IRS thinks you’re earning too much.

When you are self-employed, your business profits are taxed to you at federal rates as high as 39.6%. Add self-employment taxes, which in 2016 will amount to 15.3% of the first $118,500 of your net self-employment earnings plus2.9% of any earnings over that amount. Then there’s an additional 0.9% Medicare surtax on earnings in excess of $200,000 ($250,000 if married filing jointly). At tax rates like these, it pays to take steps to reduce your tax burden.

Step One: Deduct Business Expenses

Be sure you have an organized system for recording your expenses. To be deductible, a business expense must be “ordinary” (common and accepted in your trade or business) and “necessary” (helpful and appropriate for your trade or business). Since personal expenses are generally not deductible, it’s smart to have a separate business bank account and use a separate credit card for business purchases.

Step Two: Deduct Health Insurance Premiums

You may qualify to deduct premiums paid for medical, dental, and qualified long-term care insurance coverage for you, your spouse, and your dependents.* The coverage may include children who haven’t reached age 27 by the end of the year, even if you don’t claim them as dependents on your tax return.

 

Unlike health insurance premiums paid for employees, the self-employed health insurance deduction won’t save you self-employment taxes. However, it will lower your taxable income. You must meet certain requirements to qualify for the deduction.

Step Three: Deduct Retirement Plan Contributions

Funding a retirement plan can also save you significant tax dollars. Within limits, plan contributions will be tax deductible.** Several types of plans may be suitable for you as a self-employed taxpayer, including a simplified employee pension (SEP) plan, a savings incentive match plan (SIMPLE), or a solo (individual) 401(k) plan. Each plan has specific features and requirements that you will want to weigh carefully before making a choice.

Step Four: Engage in Proactive Tax Planning

Don’t be reactive, plan to reduce your tax bill. This starts early in the year by spending some time reviewing your situation with a knowledgable Tax Advisor

Don’t deal with tax issues on your own. Call us right now to find out how we can provide you with the answers you need.

* Dollar limits apply to the deduction for long-term care insurance premiums.

 

** Although deductible for income-tax purposes, contributions to your own retirement plan account do not reduce earnings subject to self-employment taxes.

How would you like Uncle Sam to pay for part of your vacation? Sound unlikely? If you combine your vacation with a business trip, you may be able to deduct some of your expenses. Pay attention to the rules, though. Expenses must meet certain requirements before they’re tax deductible.

General Guidelines

As long as your primary reason for making the trip is business, you generally can deduct the cost of your transportation to and from your destination. You’ll generally be able to deduct food (within limits) and lodging costs only for the days you actually spend on business.

Bring the Family

You can bring your family along, too. While you can’t deduct their food, lodging, or airfare, you can write off your own expenses, including the single-occupancy rate for lodging on days when you’re conducting business. If you and your family travel by car, you can also deduct the full cost of transportation. Just be sure to keep detailed records.

Business owners aren’t in business to lose money. So there’s not much to like about a nonprofitable year. For a shareholder in an S corporation, however, a down year can have an upside — the corporate loss may give rise to a personal tax deduction.

Standing between an S shareholder and the loss deduction is a tricky tax computation known as “adjusted basis.” Under the tax law, a shareholder’s loss deduction is limited to the shareholder’s adjusted basis in his/her corporate stock and in any debt the company owes the shareholder.

What is adjusted basis, anyway? Essentially, it’s a figure that tracks the shareholder’s investment in the company for tax purposes. The basis number changes every year to account for any money flowing between the company and the shareholder — distributions, capital contributions, loans, and loan repayments — as well as for the shareholder’s allocated share of corporate income or loss.

If a net operating loss is anticipated for the year, S shareholders should find out whether they will have enough basis to benefit from the projected loss deduction. If not, it may be possible to increase basis by making a contribution to capital or by loaning the company money before year-end. When you give us a call today, our tax professionals can offer guidance so that the transaction will pass IRS muster.

« BACK TO BUSINESS TAX

Busy is good. Most small business owners would rather things were too hectic than too slow. As the year winds down, though, let your staff handle the busy-ness while you look at the business — where you are, what you’ve accomplished in 2016 and where you’re headed in the new year and beyond.

 

Your bottom line

 

The quickest way to figure out where you are is to check your bottom line. Are you making money? Are profits better or worse than they were last year at this time? Are you meeting your expectations? If not, why not?

 

Your business plan

 

Change is inevitable. And businesses have a way of outgrowing their business plans. But if you don’t have a current plan, you don’t have a way of measuring your progress. So if you’ve been “off road” without a plan for a while, it’s time to formalize a plan that reflects past growth and sets new goals for the next several years.

 

Your competition

 

The more you know about your competition, the better. Who are they? How are they different? How are they the same? Where do you overlap each other? Understanding their business model will help you prepare strategically for possible changes in the marketplace.

 

Your secret weapon

 

Your work force is your secret weapon, especially if you’re in a competitive market. Dedicated, well-trained employees providing top-notch customer service can help put you out front of even the largest competitor. A rich, competitive benefits package will help you attract — and retain — a high-caliber work force. Health insurance and retirement plans are highly valued benefits. You can offer a variety of other benefits to suit your employees’ needs and your budget. Ask your financial professional for information.

 

Your future

 

Do you have a formal succession plan? Are you grooming someone to take over? A well-trained successor could help in the successful — and profitable — transfer of your business. And you can use life insurance to prefund all or part of the sale.

 

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.