It’s the holidays, so taxes might understandably be the last thing on your mind. But before getting caught up in the whirlwind of parties, present buying, and eggnog, business owners can potentially save thousands and secure their financial health for next year if they consult a tax professional about these three issues:
1) This year’s tax plan.
2) Next year’s tax plan.
3) Last-minute deductions to take before wrapping up the financial year.
1. Consult a Tax Professional About This Year’s Tax Plan
For businesses, a tax plan is usually part of the overall financial aspect of a business plan that:
Determines where your company stands
Projects how your business will financially fare in the near future
Indicates what type of financing you may need
Because taxes can be a tremendous business expense, many business owners find implementing a detailed tax plan as necessary to secure their financial health. It’s therefore never too late to implement a tax plan, even at the end of the year. A good one will allow you to lower your taxable income as much as possible, as well as project how much liability you will have so that you can save enough for next year’s taxes and quarterly estimates.
For example, one of the most prominent loopholes to take advantage of is one on capital gains. The IRS taxes capital gains at 25%, but there are ways to avoid this tax altogether. For instance:
Capital losses offset capital gains.
You can invest capital gains in a tax-deferred account, like an IRA or Health Savings Account.
If you treat an investment property as your primary residence for at least two out of five years, you can deduct up to $250,000 in gains from a sale of that property.
Other provisions that you can consult a tax professional about include:
What type of IRA is best for you
Vehicle expenses, including whether a TRAC lease would be more appropriate
Whether getting married will mean a tax penalty or bonus
For those who already have a tax plan, it pays to revisit it every year since tax laws frequently change (see below), as do your finances. For instance, if you are self-employed and earned more this year, you’d might want to switch to an SEP IRA. It works like a traditional IRA but allows you to make higher tax-deductible contributions.
2. Consult a Tax Professional About Next Year’s Tax Plan
With the anticipated passing of the government’s new tax bill, The Tax Cuts and Jobs Act, financial analysts are scrambling to determine what the new regulations will mean for individuals and businesses. Its major overhaul of the tax system, including reducing the corporate tax rate to 20%, leaves many business owners with looming questions like whether to incorporate and how to manage health care.
While the government has not yet finalized anything, the bill’s passage would constitute a major overhaul of the tax system. You, therefore, might want to discuss its potential implications with a tax professional now. And, even if the tax bill doesn’t pass, the IRS recently announced new tax brackets and rates for 2018, which you should go over with your tax expert.
3. Consult a Tax Professional About Last-Minute Deductions to Take
By now, even if many of your business expenses are set for the year, there are many lesser-known tax provisions to take advantage of before the year’s end to lower your taxable income for this year.
For example, many people associate the holidays with giving, whether that be in the form of charitable donations, gifts for family, or employee bonuses. If you plan to give this holiday season, know that the tax code provides ways to give more while paying less. For instance:
If you volunteer, you may deduct mileage for charity-related travel.
You can donate appreciated stocks instead of cash, which allows you to deduct the value of the stocks at the time of your donation (instead of what you paid for it).
You can opt to treat year-end bonuses as “supplemental income” instead of adding it to the regular paycheck. The IRS taxes supplemental income at 25%.
Bonuses can instead be deposited into tax-deferred accounts, like a 401(k).
Whether you would benefit from any of the above actions will depend on your situation, like what tax bracket you can expect to be in. The sooner you start taking action, the better you will be, since taking advantage of the various tax breaks can require a bit of advanced planning.
If you have questions about any of this information or would like to consult a tax professional, don’t hesitate to contact Tax N Book. We are a tech-savvy accounting firm that offers a range of services to meet our customers’ needs, including bills management, bookkeeping, payroll, and tax preparation.