From The California Business Journal Newswires.
Tax season is upon us, but do you know what that means for your tax plan for small business? This year comes with new tax changes just like any other year, but some may affect your business because laws and deductions from past years have changed.
For changes and tips you may not know, keep reading our post below to help get a better idea of your tax plan for small businesses.
When you file this season you will be able to deduct business expenses from your taxable income. The first thing is to organize what ordinary and necessary expenses you paid out of pocket for your business.
An ordinary business expense is when it’s common and expected in your business’ trade or area of expertise. An expense is considered necessary when it’s helpful and required.
Throughout the year you should be keeping a record of your purchases for your businesses. Your record should include the receipts whether they are physical or digital. Keeping all receipts can be a safety net for you and your business if you get audited.
Every year the tax laws change, and 2020 is no exception. The best part about this tax season is that the 2017 Tax Cuts and Jobs Act is still in effect.
This act created several features that can overall lower your small business’s tax bill. If your business isn’t considered a corporation you can possibly take advantage of the 20 percent tax deduction on your small business’s income.
Setting up a retirement plan for you and your employees can help save money at tax time as long as you contribute throughout the year. The only qualification is that the plan should be considered a qualified plan by the IRS.
Tax credits can help lower your income which means you will owe less to the IRS. You can get tax credits for going green, hiring employees, and even providing disabled employees and the public access to your business. Talk to your accountant about what can and can’t be counted as a tax credit.
This new law allows businesses to use new cash accounting methods over accrual methods. When using cash accounting income and expenses are only counted and tracked when they are paid or received. This is different than accrual accounting where you must track money once an invoice is sent.
As long as you are making under $25 million you can use cash accounting. This will lower your sales and make tax time easier.
Since the 2018 tax year, businesses can receive credit for providing family leave for their employees. Even though this tax credit has been around for a few years, most people forget about it.
This is one of the last years to use this credit and as of right now we don’t know if it will apply to the next tax season. To qualify you must offer written family leave paid time off and offer employees at least 2 weeks of paid time off also.
If your business functions on the accrual accounting method or must use it this tax season, then the end of the year is the time to review your business accounts. When looking at accounts you will also be going over customer accounts.
The first thing you should do is look at which accounts aren’t going to pay. You can write each account off as bad debts and deduct these amounts from your overall income to save on taxes.
Keeping a relationship with your accountant throughout the year isn’t a bad idea. Doing so will help you around tax season since your accountant will know what they are getting into and you will not have made any purchases thinking you could deduct them. Keeping in touch will also help you figure out the best financing for a business throughout the year.
We recommend that before you buy something that you’re unaware can be a write-off, contact you, accountant. They will be able to tell you if the purchase will be deducted from your business expenses at the end of the year.
In years past small businesses and contractors could be able to deduct travel expenses from their income. One of the new laws this year revises this benefit, meaning you can’t deduct as much as you used to.
Business meals now can be deducted at 50 percent but the IRS doesn’t let you deduct entertainments anymore. Such as if you took a client to a show you wouldn’t get reimbursed but if you take them out for dinner 50 percent of that bill will be deducted from your income.
We have outlined what the new tax season will bring for your small business so you can be better prepared when you sit down with your accountant. From knowing what you can’t deduct this new season to things you may have not known could be a tax credit, you should have a better idea of what your tax plan for a small business will be.
For more information for businesses be sure to check out the rest of our website.