The 2018 tax season is upon us. While there is still time left to prepare and file, the 2017 Tax Cuts and Jobs Act (TCJA) has many small business owners wondering what impact tax reform will have on their returns.
It’s a good idea to book some time with your tax advisor or CPA now so you can understand the implications on your deductions, tax rate, and even your choice of business structure going forward.
While we know an article could never replace a consultation with your own tax advisor, there are some things almost every business owner will probably need to consider. As you prepare for this uniquely challenging tax season, here are seven items to check off your tax checklist.
1. Know Your Deadlines
The 2018 tax filing season began on January 29th and ends on Tax Day, Tuesday, April 17th. The deadline usually falls on the 15th but got bumped because it’s a Sunday (and Monday is a holiday in Washington, D.C.). If you can’t finish your return on time, make sure you file Form 4868 by April 17th, 2018.
Consult your tax preparer to see what their time frame is for a timely filing and when you need to hand over documentation and records.
2. Contribute to Your Retirement Account
There’s still time to contribute to your IRA or Roth IRA. Making a deductible contribution by April 17th will lower your tax bill this year and any contributions will compound tax-deferred. For the 2017 tax year, the maximum IRA contribution is $5,500 or $6,500 if you’re 50 or older. If you have a Keogh or SEP you may be eligible for a filing extension of October 15, 2018.
3. Itemize your Tax Deductions
While the new tax law has increased the standard deduction from $13,000 for joint filers to $24,000 and from $6,500 to $12,500 for single filers, self-employed individuals may save more if they itemize their deductions – especially if they add up to more than the standard deduction cap. Itemizable deductions include tax preparation fees, business vehicle expenses, professional dues, and medical expenses (if they exceed 7.5% of your adjusted gross income).
If you choose to itemize, make sure each expense is accurately recorded, including the amount paid and a description that shows the amount was for a business expense. For example, if you travel to a client meeting, keep a record of the miles travelled, the reason for the meeting, name of the hotel if you stayed overnight, the date, and any other expenses.
Read more here about what the IRS considers “documentary evidence” to support any expense claims.
You’ll also need to categorize your expenses into buckets such as utilities, office expenses, office supplies, contractors and freelancers, travel and entertainment, etc.
4. Yes, You Can Still Claim the Home Office Deduction
There’s been much confusion about how the TCJA will affect the home office deduction. Good news! If you’re a self-employed business owner, you can still deduct eligible home office expenses against your income. In fact, more business owners now fit the eligibility criteria.
For example, if you have no fixed location for your business (think plumbers, paramedics, etc.) you can deduct the home space that you use for managing and administering your business. However, that space must be exclusively used for business (i.e. it can’t be your kitchen table space). Deductible expenses include rent, utilities, and insurance. The IRS explains your options for taking the deduction.
5. Consider the Impact of Tax Reform on your Business Structure
It’s always a good idea to talk to your tax advisor about your business structure and whether it is serving you well as your business grows. This year, the TCJA has made it a must-have conversation. Whether you’re a sole proprietor, LLC, S corporation, partnership, or other pass-through entity, you may want to review your choice.
For example, pass-through entities can now deduct 20% of any income the business generates, less applicable expenses for single filers (with income < $157,500) and joint filers (income < $315,000). Service trades such as health, law and professional services are excluded if their annual income is over $315,000.
Furthermore, the much-publicized corporate tax cut from 35% to 21% may be something you can claim if you operate an incorporated business (C corporation) but haven’t elected S corporation or operate an LLC and its members have chosen to be taxed as a C corporation.
6. Spend Some Time with Your Books
Whether you use a spreadsheet or an accounting program, spend some time making sure all your accounts are up-to-date and that you can account for every line item. Then check that all your deposits add up to your gross revenue. Freelancers need to make sure that these amounts match the 1099s issued by clients.
It’s never too early to start pulling together all your accounting reports. Being organized early on will make it much easier to complete your return. This includes:
- Profit and loss statement
- Balance sheet
- Cost of goods sold (including beginning and ending inventory amounts, materials and supplies, etc.)
- Expenses (marketing, utilities, travel, depreciation, business insurance, office supplies, training costs, home-office expenses, etc.)
- Any interest earned from savings or checking accounts
Read more from the IRS on what kind of records you should keep. Good organization can’t be underestimated and can help you out in a big way if the IRS chooses to audit you. Here are some more tips to avoid an IRS audit.
7. Get Help From a Pro
If you don’t already have an accountant, now is the right time to seek one out. Tax reform has made this tax season one that you may not wish to navigate alone. Seek recommendations from friends and peers – someone who has experience in your industry can be especially helpful.
An accountant who has experience with your tax software is also a plus since most cloud-based accounting software lets you share your records securely online with a tax preparer.
Disclaimer: The information in this blog doesn’t replace the advice of a tax or legal expert. Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. If you have any questions about your small business tax situation, talk to a professional.