2017 New Tax Laws for Small Business Owners

It's my job as an accountant to help small businesses thrive and plan for their financial future.  Taxes are a big part of the picture, especially if there's a big liability at the end of the year.   There are strategies that can be put into place to avoid this, deductions you may not know about and proactive steps you may take to decrease the impact of the annual tax bill on your small business finances.  Doing it online, especially if you have questions or are unsure of what liberties you can and cannot take when filing, may end up costing you more.  Call a professional to save you time, money and stress!

New Tax Laws That Impacts Small Business Owners in 2017

Published February 3, 2017 Entrepreneur.com

Since it’s always best to be well-prepared when it comes to taxes, here are some of the new changes that you should be aware-of. As with anything to do with the government or taxes -- if you really want to stay-top of this information, meet with your tax advisor and frequently check for updates on IRS.gov.

Keep in mind, this isn’t legal advice as I’m not in that space … but more a few new tax laws for 2017 that I’ve noticed that business owners should pay attention too.

Section 179 expensing/bonus depreciation
Under Section 179 of the tax code, explains Brian McCuller, JD, CPA, “the expensing provision allows capital investments of up to $500,000 for certain property to be taken as an expense deduction -- rather than being depreciated break -- which was made permanent under the PATH Act passed at the end of 2015 -- phases out for asset purchases above $2 million.”

Additionally, HVAC units are now eligible as an expense deduction instead of depreciation in tax years beginning after Dec. 31, 2015.

“The bonus depreciation provision allows businesses to claim additional depreciation for certain property in the first year of the recovery period if placed in service from 2015 to 2019 (with an additional year for certain property with a longer production period),” adds McCuller. “For property placed in service in 2015, 2016 and 2017, the bonus depreciation is 50 percent. For 2018, it drops to 40 percent; for 2019 it goes to 30 percent.”

In other words, if you purchased or leased new hardware or software for your business, for example, you can depreciate half the cost as part of “bonus depreciation.” For 2017, it may be in your best interest to invest in the most up-to-date equipment possible.

Tighter filing deadlines
Filing deadlines have been changed so that flow-through entity return deadlines are due prior investor return deadlines. This means that partnerships and S-corporations operating on a calendar year will have a new deadline of March 15. The deadline for calendar year based C-Corporations will be pushed from March 15 to April 15.

Below is a the complete list of changes to deadlines for each state.

Furthermore, if your business provides health benefits then please note that the deadline for Form 1095, which is the proof of insurance coverage, will be on January 31. Also take note that hard filing deadlines have been imposed for Forms 1094-B and 1095-A, B and C. These are due by February 28 by mail or by e-file on March 31.

New partnership audit rules
Effective in 2018, partnerships could be liable at the entity, as opposed to partner level for audit related tax collections. This change will have a significant impact on how partnership interests are valued and transferred. Because they’re also so complex, it’s best to speak to your tax advisor for additional information.

Expanded eligibility for R&D tax credit
Until the PATH Act, the development of internal use software was not eligible for the research and development tax credit.

Organizations, particularly in construction, software, manufacturing, wine, aerospace subcontracting, boat building and biotech, can qualify for this credit if they have engineers, scientists or product development personnel on staff.

Other qualifications include software that is innovative and can be commercially sold.

Tom Sanger, a partner with accounting and advisory firm Moss Adams, says that, “small businesses, now defined as having an average of less than $50 million in gross revenue over the prior three years, will be able to offset (the alternative minimum tax ) AMT with R&D credits generated after Jan. 1, 2016.”

“This provision opens up the credit to small corporations subject to the AMT, as well as pass-through entities (where the credits flow through to shareholders),” Sanger adds. “In the past, these credits were suspended and carried forward for up to 20 years until they were no longer subject to the AMT.”

Pending estate planning changes
“The IRS has proposed changes in the rules for how minority stakes in family-owned businesses are valued when owners transfer interests to the next generation during their lifetimes,” explains McCuller. “The changes have not been finalized, and business owners who have been considering passing along part of their ownership interests may want to consult with their tax advisors about accelerating those plans to take advantage of current rules.”

Possible tax laws under President Trump
In addition to the changes listed above, business owners should also pay attention to the tax laws that may take effect under President-elect Donald Trump.

For starters, “The Trump plan would reduce the corporate tax rate from a maximum rate of 35 percent to a rate of 15 percent (the GOP Blueprint calls for a U.S. corporate rate of 20 percent),” says accounting, tax and consulting firm Elliott Davis Decosimo. Also, “U.S. manufacturers would be able to fully expense new plant and equipment investments, though by doing so would forego any deduction for net interest expense.

“Most tax credits, other than the research credit would be eliminated. For U.S. taxpayers with foreign subsidiaries, there would be a one-time deemed repatriation tax of 10 percent on foreign earnings of those subsidiaries.”

This could have major tax consequences for small businesses. In fact, Trump’s tax reform will most likely benefit the wealthy and large corporations as opposed to SMBs.

(By John Rampton)

Change in Small Business Expense Threshold for Deductions

Straight from the IRS, news that allows small businesses to immediately deduct expenses that would previously have to be spread out annually through depreciation deductions!

For Small Businesses: IRS Raises Tangible Property Expensing Threshold to $2,500; Simplifies Filing and Recordkeeping

WASHINGTON —The Internal Revenue Service today simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500 the safe harbor threshold for deducting certain capital items.

The change affects businesses that do not maintain an applicable financial statement (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.

“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.“

Responding to a February comment request, the IRS received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce administrative burden on small business. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smart phones, and machinery and equipment parts typically surpass the $500 threshold.

As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold. The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

To access the original article, click here.

4 Reasons DIY Bookkeeping Can End Up Costing You More

While many people only think of accountants at tax time, a big part of my job, more than preparing taxes, is bookkeeping for local businesses.  While finances are my number one priority, small business owners are very busy and tend to put it off for more urgent matters.  But unfortunately, around this time of year, finances are what becomes urgent and you have a year’s worth of book reconciliation to do.

Here is why the DIY route to bookkeeping will end up costing you money instead of saving it:

1.  Faulty bookkeeping will give you a faulty picture of your cash flow, which from all of my previous advice, you already know that cash-flow is the lifeblood of your small business!  Don’t obscure your financial viability.  Without accurate records, you won’t be able to tell how to fix a financial problem or even if there is one in the first place.  Dangerous!

2.  Overestimation or Underestimation of profits means that you’ll either pay more in taxes on income you didn’t actually receive, or you’ll raise the eyebrow of the IRS on cash you didn’t know you needed to report.  That includes reporting assets and expenses that can lead to a higher tax liability as well (i.e. depreciating assets).  Overlooking costs or misplacing receipts means you can’t write those expenses off, either.

3.  Payroll problems can arise if you have inaccurate records.  How do you know if you’re over or under compensating employees or their benefits with inaccurate bookkeeping?  Answer: you can’t.  An error that carries over to an employee’s W-2 from your own records causes tax problems for them as well.

4.  Who owes you what, what do you owe? When?  Unorganized invoicing means the longer it takes to get you paid.  It also means the longer it takes for you to send money you owe which leads to late fees and penalties.  Being backed up on your bills and incoming payments is a serious cash flow issue.

Ultimately, bookkeeping mistakes are extremely expensive and very time-consuming.    Hiring an expert like me to fix them will cost you a pretty penny I don’t mind saying.  However, hiring an accountant for regular bookkeeping can be a great decision.  It gives you the power to maximize your business decisions, like knowing when to make investments in equipment,  inventory or even more staff.  Accurate bookkeeping is what gives you, the small business owner, information on how best to run your business.

New Year’s Resolution - Avoid Accounting Regrets

One thing that I hear a lot from clients is that they don’t really know how to separate their business accounts from their personal accounts. This can make end of the year accounting a pain, not just for your accountant but for your business too.

As a New Year’s resolution you should consider paying yourself a salary if you’re self employed. I know this may sound a little bit weird since the money comes into a business that you own, so it makes sense to just use the money of the business to cover any expenses, right? Well the problem with that is that the IRS does not really see it that way. A business and an individual are two separate entities, this of course depends on how your business is setup but most businesses including LLC’s will benefit from keeping separate finances.

What you may not realize is that this will make it easier for you to track profit and loss. For example, if you’re paying yourself a consistent salary, then you’ll know exactly how much of a profit is left every month from the incoming transactions that a business has. There are many benefits from doing this but a lot of small business owners don’t realize that they should and probably have to do this to run a more efficient business.

On the flip side, if you pay yourself a salary you know how much money you can spend every month and budget accordingly. Business owners face the additional challenges of not having a steady paycheck, this can be especially difficult for those who have grown accustomed to having a job working for someone else. Knowing how much money you are paying your employees from a business stand point is important, and you should consider yourself an employee of your company.

Setting up a salary for yourself should not be so difficult, just look at your bank statements from previous months and approximate how much net income you’ve accrued constantly every month. Make sure to leave some buffer for unexpected expenses but at the same time make sure you’re being compensated fairly to avoid dipping back into the business account.

This New Year, make a resolution of being a better business by avoiding a whole year of accounting regrets, you'll be glad you did come tax season.