Small Business Tax Guide 2018
Everlance wants to help small businesses make the most of their money, so this year we've created a 2018 small business tax guide to help prepare you for upcoming changes to the tax code.This year’s new tax legislation means that American small businesses can expect a break on their taxes for 2018. That's the good news.The bad news is that taxes are still difficult and in order to maximize your deductions and the amount you owe to the IRS, you need to be prepared.We hope this 2018 Small Business Tax Guide will help you do just that. In conjunction with using Everlance to track your small business expenses such as mileage, receipts, travel & more; you'll be ready to tax on the 2018 tax season!The new legislation provides lower tax rates for corporations and pass-through entities and affects businesses of all sizes. A recent poll of small business owners found that 83 percent were optimistic about the legislation and 38 percent said they intended to hire more people because of the legislation. This positivity combined with concrete benefits from legislation can act as a catalyst for growth, not just for your small business, but for the economy at large. As a small business, it is crucial to understand current tax laws and keep abreast of any changes so that you can ensure you’re paying the correct amount. Today, we’ll discuss the recent changes in tax law so you know how much you’re required to pay and what deductions you’re entitled to. Small Business Tax Guide: Deductions for Pass-Throughs and CorporationsThe most notable change for all businesses in the coming year is the ample deduction for both pass-throughs and corporate entities. Pass-through businesses are defined as small businesses organized as limited liability companies, S-corporations, sole proprietorships and partnerships and make up approximately 95% of US businesses. The new bill provides a 20% deduction for all these businesses, with the exception of service-based businesses such as law and accounting firms making more than $315,000 annually (or $157,500 if single). The new legislation lowers the corporate tax rate from 35 to 21 percent and provides a substantial windfall for C-corporations. The aim of this reduction in the tax rate is to bring companies back to the US, hopefully allowing them to employ more workers and drive the production of wealth. Small Business Tax Guide: First-Year Bonus DepreciationThe first-year bonus depreciation deduction has been increased from 50 to 100%. This means that businesses making eligible property and equipment purchases can deduct the full amount of the expense, rather than writing off a portion of the purchase each year. This translates to more money up front for your business, which lawmakers hope business owners will invest or use to hire workers. The new tax plan allows businesses to write off the costs of assets in one go. This means a company can invest in computers, vehicles, and equipment and claim the entire expense when filing their 2018 tax return. This tax break will hopefully create an incentive for businesses to invest back in their companies and employees. Small Business Tax Guide: Net Operating Loss ChangesWhile net operating losses (NOL) used to be able to be carried back for two years, this is no longer the case. However, they can be applied for an indefinite length of time going forward under the new tax legislation. NOLs occur when a company’s tax deductions amount to more than its taxable income. They function as a form of tax relief where businesses can apply a NOL to tax payments in the future. The change takes away businesses’ abilities to restructure taxes completed in past years, but it extends the NOL’s lifespan indefinitely and can be applied to up to 80% of taxable income. The goal behind this change is likely to incentivize businesses to spend more money and take more risks. If you are able to carry NOLs forward indefinitely, it substantially lowers the cost of failure. Small Business Tax Guide: Elimination of Transportation Fringe BenefitsTwo less-crucial but notable changes are the elimination of the entertainment expense deduction and of transportation fringe benefits. While these employee perks can be provided by employers in the form of reduced-rate entertainment plans and employee commuter plans, businesses can no longer write off the cost of these programs as business expenses. While the elimination of these fringe benefits may change the structure of some companies, particularly those who rely heavily on entertaining clients to drive sales, they are likely to have much less of an impact compared to the other changes to the tax code for 2018. Small Business Tax Guide: Important 2018 Tax DeadlinesIn addition to the structural changes to the business tax code, there are some important dates to keep in mind:
- S-corporations must file their business taxes by March 15, 2019
- The deadline for 2018 tax returns is April 15th, 2019
- Quarterly estimated tax deadlines are April 17, June 15, September 17 and January 15
Make sure to prepare for these deadlines and be ready well in advance. It is important to keep detailed, organized financial records so that it is easy to find the information you need when the time comes to file your taxes. Proper preparation can go a long way towards taking the stress out of tax season. Small Business Tax Guide: Helpful HintsIf you’ve just started your business or are new to the world of small business tax structures, there are some things to bear in mind. While you can do your taxes on your own, you should seriously consider working with a CPA. Aside from making sure that your business is paying everything you owe, a tax professional can help ensure you are taking advantage of any and all deductions available to you. Some further tips to keep on top of your business taxes are:
- Keep your taxes in mind year-round. Small business owners shouldn’t treat taxes as an annual event. Instead, treat tax planning as a year-round activity to make sure you’re fully prepared by the necessary deadlines. Putting things off to the last minute makes tax prep much more complicated and limits your ability to save money by maximizing deductions. Save yourself the headache and plan ahead!
- Be aware of changes in business tax law. Keep abreast of news related to legal changes that affect your business. Working with a skilled professional can help, but you still need to ensure that you’re taking responsibility as a business owner to know current tax law. Read the financial papers and keep up with Congressional actions on tax legislation.
- Don’t assume anything. To a certain extent, tax planning is a bit of a gamble. It is never a good idea to make business decisions under the assumption that particular policies will be enacted or that certain tax breaks will pass congress. Don’t buy into media hype about a proposition, wait until it has gone into effect before making any business decisions.
Small Business Tax Guide: Additional ResourcesThere are additional resources for information regarding business taxes. Check out the links below to answer additional tax questions you may have:
- The US Small Business Administration maintains a guide to the tax code, making it a useful tool to navigate tax law and stay up to date on your responsibilities as a business owner.
- For questions related to how the ACA affects small business owners’ taxes, the IRS website has information specifically relating to the ACA in its current form. Note that it is possible that potential changes could be made to the ACA in coming years.
- The IRS also maintains its own information center on self-employed and small business taxes, which can be helpful to small businesses and the self-employed.