Tax season is officially upon us, and if you are a small business, you may be wondering how best to prepare for 2018’s tax filing. It is the first year everyone will experience how the Tax Cuts and Jobs Act passed in 2017 will impact them personally.
While there were no significant changes to the small business tax code, there are considerable tax changes overall that should have a positive impact on most small businesses.
As a small business owner, there are changes to be aware of and preparation best practices you can observe to get and stay organized. Preparing for this year’s taxes can be manageable. Here is what you need to know.
Getting Your Taxes Prepared
Small Business Tax Filing Forms
The forms and the information you need to account for when you file is largely unchanged. You can start by pulling all the tax filing forms you’ll need to complete as a small business owner. These forms will also let you know what information you need to prepare and the associated supporting documentation. Again, these are for small business owners (sole proprietors and single-member LLCs).
- Schedule C
- Schedule C Instructions
- Schedule SE for self-employment tax
- Schedule SE instructions
- Form 8829 (if you use your home for business)
Tax Details Needed to Complete Tax Filing Forms
The information you’ll want to have organized to complete your Schedule C forms and Form 8829 include:
- Profit and Loss Statement
- Cost of Goods Sold (if you are a business with inventory)
- Your Itemized Business Expenses
- business travel
- business driving expenses
- business meals
- business operating expenses like phone, utilities, etc.
- business insurance expenses
- labor fees (if you used contractors and paid them more than $600 in the calendar year)
- Business Use of Your Home Expenses
- square footage of your home that is dedicated workspace
- amount of your home mortgage interest, real estate taxes, and homeowner’s insurance
- home expenses like utilities, rent, repairs, and maintenance
- value of your home for depreciation purposes
Tax Changes Affecting Small Business
While the preparation for filing your taxes should look and feel mostly the same, there are changes that many small business owners should look forward to realizing this year.
20% Qualified Business Income (QBI) Deduction
Small business owners, for the first time, can expect a significant deduction for pass-through income. With some exceptions (like a service-based business like myself), many small businesses are eligible for a 20 percent qualified business income deduction. The phaseout for this deduction is an annual household income of $315,000 per year for married couples filing jointly and $157,500 per year for singles.
Net Operating Loss Changes
Most taxpayers no longer have the option to carryback a net operating loss (NOL). Net operating losses are when a business’s tax deductions exceed its taxable income. The new provision to net operating loss offers tax relief for businesses and extends the ability to deduct these losses indefinitely. For losses occuring after Dec. 31, 2017, the deduction is limited to 80% of taxable income.
Elimination of Business Entertainment Expenses
As a small business owner, you can still deduct business meal expenses, but you will no longer be able to write off business entertainment expenses, like tickets to a basketball game with a client. However, if you consume food or beverage while performing business activities at an entertainment venue, that is still an eligible business expense.
For a complete list of the tax changes that impact businesses, visit IRS.gov for more details.
Whether you live and operate your business in a high-tax state or not, many of these tax reform changes should reflect a mostly positive impact on your 2018 tax return. We are all still learning the effects of the new tax laws, and I think soliciting the professional guidance of a CPA to file your tax returns this year if you traditionally file on your own is a good idea. You want to get this right.
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