Top Tax Concerns for Small Businesses

Taxes may be the last thing you want to think about while you’re busy running your business, but a little knowledge can go a long way to help minimize your tax burden and make the most of tax law opportunities.

The California Society of CPAs reviews just a few of the key tax considerations for small businesses and offers ideas on how to address them.

Consider the Best Business Structure

As a general rule, the way your business is taxed depends on your business structure. For example, in a sole proprietorship, the business owner generally reports their business income on their individual income tax return, while a corporation files a separate Form 1120 with the IRS.

It’s important to determine which business structure is best for your company, based on issues such as ownership, liability concerns and, of course, taxes. Your CPA can help.

Get Up to Speed on New Tax Rates

The recently passed Tax Cuts and Jobs Act contained a number of significant changes. The corporate tax rate has been reduced from a top rate of 35 percent to a flat rate of 21 percent. In addition, taxpayers with qualified business income earned through sole proprietorships, partnerships, S corporations, and LLCs (other than those taxed as C corporations) could be entitled to a deduction of up to 20 percent of that qualified income.

The corporate alternative minimum tax has also been eliminated. It’s a good idea to reach out to your CPA in order to reap the benefits of tax reform and implement any needed steps to minimize taxes. 

Remember Bonus Depreciation and Section 179

The new law also expanded the definition of Section 179 property and increased the maximum allowable annual deduction from $500,000 to $1,000,000. In addition, the bonus depreciation percentage has been increased from 50 percent to 100 percent for qualified property, both new and used, placed in service after Sept. 27, 2017 and before January 1, 2023.

Talk to your CPA about how these rules could affect your decisions on upcoming investments or improvements.

Document to Get Deductions

You can’t deduct an expense if you don’t record it and keep the appropriate documentation. If you’re just stuffing receipts in drawers or wallets, there’s a good chance that you’re missing out on deductions.

There are numerous software programs that can help you track your expenses. Set aside some time each month to properly record your expenses and organize your documentation. You’ll be glad you did when tax time comes around. 

Make the Most of Retirement Plan Options

There are a number of retirement plans small business owners can start. They include defined contribution plans, such as 401(k)s, and IRA-based plans. These plans offer tax advantages and other incentives, such as high contribution limits and catch-up rules that allow employees age 50 and over to set aside additional contributions. With all these opportunities, there’s no excuse to miss out on the chance to save for your future.

Consult Your CPA

Taxes are complicated, but your local CPA can help you understand new and existing rules and point out the steps you can take to reduce your tax burden. Visit Find a CPA to find one near you.

Copyright 2018 American Institute of Certified Public Accountants.

The Money Management columns are a joint effort of the AICPA and the California Society of CPAs as part of the profession’s nationwide 360 Degrees of Financial Literacy program. Listen to podcasts with more financial tips.