Tax planning is as essential as ever – especially if you owed last year. This is in part due to the provisions of the massive Tax Cuts and Jobs Act (TCJA) that went into effect this year. While the new law provided substantial reductions for many, it also eliminated and/or limited many tax breaks and provided only temporary tax relief (unless Congress acts to make it permanent). What does this mean for your business? If you want to save money on taxes next year, you’ve got to do your research or ask an expert!
Restructuring Your Business
When it comes to proactive tax planning, you may want to start with how your company is structured. Due to the multitude of business-related provisions, the TCJA changes warrant revisiting the tax consequences of business structure. This is especially true for businesses that combine pass-through taxation with limited liability, namely S corps and LLCs.
- The now-flat corporate rate of 21% is significantly lower than the top individual rate of 37% which provides significant tax benefits to C corps.
- The impact of double taxation is mitigated for the owners of C corps.
- The corporate alternative minimum tax (AMT) has been repealed, while the individual AMT remains.
Keep in mind that there may be unwelcome tax consequences that effectively prevent a major change. Bookkeeping Geeks can help determine if restructuring your business is the right move. Call today at (813) 515-0216!
Advantages to Keeping Your Current Business Model
Here’s where it may get a little confusing...The TCJA also introduced powerful deductions for owners of pass-through entities. This will likely encourage business owners to maintain their pass-through entity standing. Thanks to the Section 199A deduction for sole proprietorships and owners of pass-through business entities such as partnerships, S corps, and LLCs.
The deduction generally equals 20% of qualified business income (QBI) – subject to limitations that can begin to apply if taxable income exceeds the applicate threshold ($160,700 or $321,400 if married filing jointly). The limits fully apply when taxable income exceeds $210,700 and $421,400 (joint filing).
Incorporating Strategic Tax Planning
Careful planning with a qualified bookkeeper and accountant will help maximize tax deductions and tax savings on your 2020 business income taxes. Here’s how…
Projecting Your Income
If you can project your income for 2019 and 2020, you can time income and deductions to your advantage – largely through deferred income. Depending on the method of accounting your business uses, i.e. cash or accrual, you can defer certain services or make deductions this year rather than next.
Talk to your bookkeeper or accountant to make sure this is the right move for your company.
Certain depreciation-related breaks and strategies have been enhanced by the TCJA. Namely the Section 179 expensing election. This allows you to deduct – rather than depreciate over several years – the cost of purchasing eligible new or used assets.
In addition to attracting the best employees, offering benefits provides yet another tax-deductible contribution. Depending on the size of your small business, you may want to consider offering the following benefits:
- Qualified deferred compensation plans such as pension, profit-sharing, SEP and 401k plans, and SIMPLEs
- Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Health Reimbursement Accounts (HRAs)
- Fringe benefits such as employee discounts, group term life insurance, and health insurance
Bookkeeping Geeks Helps with Business Tax Strategy
As a business owner, you likely pay your taxes all at once. Therefore, you must be proactive with your finances.
Business tax strategy can be a confusing and overwhelming process, especially with the new TCJA provisions. However, it is an essential practice that will help your business make significant savings and lower the impact of the new tax provisions.
Bookkeeping Geeks can help your small business save on business income taxes for 2020, please call us today at (813) 515-0216