At the end of the year, many small business owners start looking for ways to lower their business taxes. Although the best tax plans are usually implemented year-round, it’s not too late to save in 2018 while you begin to plan for next year.
Steve Moskowitz founded the full-service tax law firm of Moskowitz, LLP (www.moskowitzllp.com) with the firm belief that everyone with the drive and commitment to start and operate a profitable business should not be held back by fear or ignorance of the tax code. In fact, one of the core principles of our firm is that individuals and businesses should learn how to benefit from it.
Here are just a few of the many tax-saving strategies we recommend to our business clients at year-end:
1. Time your income and expenses
Although it is difficult to predict how your business will fare next year, we can review your books and business plan to see whether receipt of income and payment of expenses would benefit you more this year or next. If you have had a great year, you may wish to decrease your revenue by delaying some of your December billings until early January. If you have the cash available, you can also increase your deductions this year by (1) purchasing equipment that you were planning to buy in the near future; (2) stocking up on office supplies and other items that you utilize on a regular basis; and (3) pre-paying your business mortgage, rent, insurance and/or professional subscriptions.
2. Depreciate your new equipment
The Section 179 deduction has been expanded – business are now permitted to take a first year deduction of up to $1 million on purchases of qualified equipment. Above this amount, the deduction is reduced dollar for dollar until it completely phases out at $2.5 million. For equipment expenditures that either don’t qualify under or exceed the limits of Section 179, you can take an immediate first-year deduction of 100% of the adjusted basis of the property under the new bonus depreciation rules. The new law also allows you to take this depreciation allowance for equipment that you purchased second hand – just make sure to put it in service before the end of the year.
3. Set up a 401(k) plan
You are entitled to a tax credit of up to $500 per year towards the setup and the first three years of administering a company 401(k) plan. You also receive a deduction for all amounts put into the plan, which are tax-deferred until you or your employees withdraw funds.
4. Give bonuses to your staff
You can lower your business taxes and make your employees happy with gifts or bonuses at year-end. Keep in mind that while S Corporations can deduct the full amount, C Corporations can only deduct bonuses to shareholders with a 50% or greater interest in the company. These deductions are not available at all to LCCs, partnerships and sole proprietors.
5. Take all available deductions and write-offs
Remember that pass-through entities such as S Corporations and Partnerships are now able to take a 20% off qualified purchases under Section 199A of the new tax code. Also, don’t forget to take a deduction for business loan interest and to write off bad debts and obsolete equipment!
6. Buy energy-efficient business property
Be good to the environment and yourself (through tax deductions and credits) by purchasing energy-efficient business property, vehicles and equipment.
7. Meet with your tax professional now!
“It is vital that you plan your taxes before the end of the year in order to utilize as many new benefits of the new tax law as you can,” says Moskowitz, “otherwise, you may regret missing a tremendous benefit because you only found out about it after December 31st.”
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