You may already know that we’re big believers in proactive tax planning, especially for business owners. The earlier you begin to plan for tax season, the better your tax savings are likely to be.
Of course, if you’re a business owner paying quarterly taxes, you’re probably already fairly on top of your financial game. (If you haven’t been keeping up with your quarterly tax payments, though, you probably need to read up about quarterly taxes here.)
But as we begin to bring 2017 to a close, there still may be time for you take advantage of some other tax credits and deductions. Below are some common (and not-so-common) year-end money-saving practices for businesses.
Please note that this discussion applies to the tax laws currently in effect, and may possibly change with any new tax legislation that may be passed into law.
2017 Business Tax Credit Highlights
While this is not a comprehensive list of possible tax credits, these may be of interest to many business owners:
Research & Development Tax Credit
If you make $50 million or less in gross receipts, you can claim the research and development tax credit against alternative minimum tax liability. This credit can be used by certain qualified small businesses (in the first few years of operation) against the employer’s payroll tax (i.e., FICA) liability.
Employer Wage Benefit for Employees in the Military
This benefit is useful if you pay full price for employees who were previously in the military. The credit amount is equal to 20% of the first $20,000 of differential wage payments to each military employee for the taxable year. Any size employer is eligible for the credit so long as there is a written plan in place to provide such differential wage payments.
Work Opportunity Credit
You may benefit from this credit if you hire people from a group that has typically faced discrimination AND you have not used the employee retention credit.
This credit refunds some of those employees’ wages for the first year after being hired (between Jan. 2016-Dec. 2019). Employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) will be entitled to an increased credit amount (i.e., 40% of the first $6,000 of wages).
Additionally, if your business had to be shut down due to the recent hurricanes, but you kept your employees on the payroll, you are also entitled to a tax credit.
2017 Business Deduction Highlights
Taking advantage of business deductions relevant to your industry or specific financial situation is another way to save money at the end of the year. Again, this is not a full list of possible deductions, but here are some highlights:
Qualified Hurricane Contributions
Qualified hurricane contributions are cash payments by certain organizations from August 23, 2017, to December 31, 2017. It must be acknowledged in writing that funds will be used for relief efforts. Deductions are not subject to the general 10% limit but, instead, are allowed to reach the total level of contributions (without exceeding the corporation’s taxable income).
This is pertinent if you’ve made any new equipment purchases that might render older equipment as less important.
Make a “§ 179 election,” which allows you to deduct otherwise depreciable business property, including computer software and qualified real property. You may deduct six months’ worth of depreciation for equipment used on or before the last day of the tax year. (Generally, unless that amount is more than 40% of the cost of all personal property).
This deduction is helpful for property acquired and placed in service during 2016 through 2019. The bonus depreciation percentage is 50% for property placed in service during 2016 and 2017, with a phase down to 40% in 2018, and to 30% in 2019.
Self-Employed Health Insurance Premiums
Self-employed individuals can generally claim 100% of the amount paid for medical care for themselves, their spouses, and their dependents during the taxable year. This counts as an above-the-line deduction and is not prevented by the general 10%-of-AGI floor. Self Employed Health Insurance includes eligible long-term health care premiums.
Vehicles Weighing over 6,000 Pounds
Purchasing a company vehicle over 6,000 pounds in the past year allows you to avoid the statutory dollar limit for depreciation, and the vehicle would qualify for the full equipment expensing dollar amount. A bonus depreciation increases the claim amount from $3,160 for cars or $3,560 for vans and trucks to $11,160 for cars and $11,560 for vans and trucks.
Domestic Production Activities Deduction
For corporations, individuals, and owners of partnerships and S corporations who engage in “Made in America” products, this deduction is available, but rules vary by state and business.
Home Office Deductions
You’ll qualify for these deductions if you regularly use your home space as:
- A principal place of business
- As a place where patients, clients, or customers regularly meet in the normal course of business
- In the case of a separate structure not attached to the residence, in connection with a trade or business
- If you own a business that is structured as something other than a sole proprietorship, you can generally set up an accountable expense reimbursement plan, to deduct these home office deductions in your business entity, and avoid having to file the “red flag” home office deduction form. However, some hoops must be jumped through, so be sure to contact us before setting up such an arrangement.
NOL Carryback Period
If your business suffers net operating losses for 2017, you can apply losses from the current year against taxable income going back two tax years, thus generating tax refunds for as far back as 2015. Farming losses can be carried back five years.
A corporation may file Form 4466, C-Corporation Application for Quick Refund of Overpayment of Estimated Tax if they believe they have overpaid taxes due to a failure to meet expected revenue.
Inventories of Subnormal Goods
This is relevant for you if you have goods that cannot be sold at normal prices due to damage, imperfections, shop wear, changes of style, odd or broken lots, or other similar causes.
If your business has subnormal inventory at the end of 2017, you can generally take a deduction for any write-downs associated with that inventory, as long as you offer it for sale within 30 days of your inventory date. The inventory does not have to be sold within the 30-day timeframe.
Have questions about possible 2017 business tax credits and deductions?
We at Pine & Company CPAs pride ourselves in offering our clients comprehensive business consulting services. Be sure to contact us to schedule a meeting so we can identify the best tax credit and deduction strategies for you.
The above advice (‘this message”) is not intended to constitute written tax advice within the meaning of IRS Circular 230 §10.37. Therefore, the intent of this message is to communicate general information for discussion purposes only, and you should not, therefore, interpret the statements to be written tax advice or rely on the statements for any purpose.