There’s never a better time to start planning your tax moves before the end of the year, especially if you’re a small business owner. Overpaying taxes is a major setback that no business owner wants to go through. Planning ahead of time can help you save big on taxes. That’s why our team of tax professionals came up with just a few simple strategies that you can use to reduce your tax burden for 2018.
A long-standing strategy for small businesses is to get as many deductions in that you can before the year ends. If you are a business that uses the cash method of accounting, which is what many small businesses use, then you can defer income into 2019. You don’t have to report income until the year that you receive cash or checks either by hand or mail. Do this by delaying end-of-year invoices so that the payment isn’t received until 2019. If you are using the accrual method you can delay income by prolonging delivery of goods or services until January of 2019.
Section 179 of the IRS tax code gives small business owners a big advantage. Are you unfamiliar with what section 179 is? It basically allows business owners to deduct the full purchase price of qualifying equipment and/or software purchased or financed during that tax year. So, if you purchase new equipment or non-real property for your business before the end of year, you can use that as a big tax-write off for this year’s taxes. There are a lot of rules when it comes to Section 179 so make sure that you understand the limitations and exceptions before you move ahead.
Timing is Everything
By buying equipment at the right time, you might be able to increase your tax benefit. “Conventions,” are included in the tax rules for depreciation and consist of three types. Conventions are rules for figuring out how many months of depreciation you are able to claim but you must first know the type of property and when you started using it. Here are the three types of conventions:
- The half-year convention- this convention applies to all property excluding residential rental property and nonresidential real property unless the mid-quarter can be applied.
- The mid-quarter convention- this convention has to be used if the cost of equipment placed in service during the last three months of the tax year is more than 40 percent of the total cost of property placed in service for the entire year.
- The mid-month convention- this convention treats all property placed in service during any month as placed in service on the middle of that month. It applies only to residential rental property or nonresidential real property as well as railroad gradings and tunnel bores.
Try and figure out the best time to buy equipment for your business so that you can take full advantage of these tax rules.
Set Up Health Care Credit and Retirement
If you employ 25 or fewer full-time employees with an average annual wage of $50,000, you might qualify for a tax credit to help pay for your employees’ health insurance. The credit is 50 percent for profits and 35 percent for non-profits. If you are self-employed and have not set up a retirement plan you should do so before the end of 2018.
Hire a Tax Professional
Planning tax moves for your business ahead of time can be a daunting task. If you have someone looking over your taxes already, it doesn’t hurt to get a second opinion. Having someone take a second look can often lead to uncovered tax deductions that your current CPA or tax team missed. The IRA allows you to go back three years from the date that you filed the original tax return. Find a professional that has a keen attention to detail and isn’t afraid to ask questions so they can give you the best solution.
These are just a handful of tax strategies that you should be thinking about when it comes to planning before the year ends. Getting started now will make a difference in your tax bill for 2018. If you need help planning for your small business or want to find a solution to lower your business taxes, our tax planning experts are here for you. Call us at (855) 851-8318 or visit bodineperry.com.