We’re all about being proactive. It’s who we are. We prefer to stay way ahead of the game because simply put, it’s the smart thing to do.
So, as 2018 begins, we think it’s time to start thinking about how to begin saving on your next tax bill (yes, already!). There are some tried-and-true methods to getting off on the right foot, but due to new tax reform changes, there are a few things you’ll want to begin keeping an eye on now.
Here’s what to start doing in 2018 to lower your 2019 tax bill:
See if You Qualify for the “Pass-Through” Deduction
There are potential savings that will allow eligible small business owners to get a 20% deduction from their business earnings. Essentially, this means that owners of pass-through entities (, partnerships, most LLCs, and S corporations) will be able to take 20% off their earnings before they pay taxes on it.
Pass-through entities account for 95% of all businesses in the United States and this new rule serves as a comprehensive benefit to small business owners. This deduction is meant to help small business owners save money and reinvest in creating new jobs, purchasing new equipment, or expanding their overall businesses.
With that said, the rules for determining your eligibility are complex and there are many caveats and exceptions. For example, self-employed individuals who run service-based businesses like doctors or lawyers are subject to a different set of rules. You will need to meet with your tax professional in order to know for sure how (and if) you qualify.
Also, if you haven’t created a pass-through entity, and your business would qualify for this deduction, it is imperative that you do so as soon as possible to begin enjoying this benefit! Determining the right type of entity structure for your particular situation is a complicated question that we strongly recommend you receive competent tax consulting when determining.
Take Advantage of the Increased Expense Limit for Equipment Supplies
Your business may be able to take advantage of an increased expense limit for equipment supplies. Simply put, instead of having to recover the cost of your equipment purchases over a period of time, you can elect under Section 179 to expense them immediately, in the year you actually make those purchases.
This deduction is good for new or used equipment and software, but it must have been financed or purchased (and used) between January 1, 2018, and December 31, 2018. A key intended benefit of the increased limit is a bit of financial relief for businesses who would otherwise be discouraged from investing in new equipment that could help their companies thrive in the long run.
Keep in mind that $2,500,000 is the maximum amount that can be spent on equipment before the Section 179 deduction available to your company begins to be reduced on a dollar-for-dollar basis. There are also certain, stricter limits on business vehicles, so it’s wise to consult with your tax professional to see how it can work in your favor.
Consider Incorporating or Restructuring as a C-Corporation
The new tax law provides a relatively super low tax rate of 21% of all C-corporations. In some cases, it may make sense for a taxpayer to change their structure to be taxed as a C-Corporation. However, this is a complicated consideration as you would then face double taxation as dividends that are paid from a C-Corporation are also taxed, even after the corporation has paid its own income tax. With that said, be sure to consult with someone who can help guide you through the process.
Take a Look at the Increased Research and Development Credit
This credit is generally known simply as the Research and Development or R&D credit. We have been surprised to find that many of our new clients who are eligible for this credit have never heard about it – even their previous CPAs never helped them take advantage of it. This credit is based on a very complex set of rules, but it is definitely not only for high tech companies. Many contractors, restaurants, and other “normal” businesses can receive it. A credit is better than a deduction as it reduces your tax dollar for dollar, rather than just decreasing your tax owed by the deduction multiplied by your tax rate.
Looking for tax planning services in DFW?
When it comes to money matters, the sooner you begin planning, the better. Our personal and business tax services are specially designed to take a proactive look at your financial situation with a simple overall goal: saving you money. When you schedule a specialized tax planning meeting with our financial experts, we will ensure you’re taking full advantage of every possible tax reduction opportunity available to you before it’s too late. Learn more about our tax planning services here.