So, what does that mean for you, the small business owner? Well, you can begin making moves that will positively affect your 2019 IRS tax bill. The IRS has made many changes recently that many small business owners may not be aware of or use.
Here are some ways you can start your small business tax planning that most financial advisors would endorse as we move into the fall season:
Start your 401 (k) now: In 2019, small business owners can deduct up to $51,000 with matching. In other words, you can use $18,000 as a deferral before matching and $5,500 for employees 50 years and older. (Check with your payroll officer or business accountant before taking this measure.)
Buy a business vehicle: Small businesses can purchase a truck or any vehicle weighing 6,000 pounds or more. This year, businesses can deduct up to $25,000 depending on the business use percentage and cost of the vehicle.
Convert your IRA to a Roth IRA: Your traditional IRA is not giving you all the benefits. Instead, convert your IRA to Roth. You will pay taxes at a lower rate and avoid paying takes on future withdrawals. Check with your accountant or financial advisor before changing over. You must do it by December 31, 2019.
Add your children and spouse to the payroll: A forgotten-sometimes abused-way of saving money is by bringing your spouse and children onto the payroll for doing real work for the business. Pay them through a sole-proprietorship or single-member LLC. If children are under 18 years old, the business is not required to withhold FICA or payroll taxes. Additionally, the child can use a standard deduction of $6,300 against any income you pay, as its earned income and so no income taxes! However, if it’s an S-/C-corporation, the IRS requires that you withhold FICA from all employees on the payroll. (Again, check with your small business accountant for details and guidelines.) Office cleaning, filing, shredding, driving to errands, etc., are jobs both children and spouse can do for you.
Set your payroll amount: By December 31, all S-Corporation owners or newly elected LLC S-Corps must complete their payroll. The fourth quarter is coming and it may draw an IRS audit but you may want to lower it or increase it based on the net business income.
Close on the rental property: Your rental property may be costing you write-offs now as laws have changed. Check with your accountant to see if the real estate professional classification has changed.
Make your LLC an S-election: Done in December, if you’ve paid a high amount of self-employment tax and had an LLC, you can elect to be taxed as an S-corporation, retroactively, to January 1, 2019. The application is easy and does not cost a lot. Be sure to do the payroll and take some payroll for yourself.
There are a number of other tax strategy steps you can take. Please consult an experienced small business tax accountant before you do.
A.K. Burton, PC, has experienced small business financial advisors who can assist you and represent you before the IRS and even do your payroll. Call us at (301) 365-1974 or email email@example.com. A.K. Burton, PC serves the Bethesda, Rockville, and Montgomery County areas.
Here are some new tax laws (2018) that you should keep in mind as you file your taxes in 2019:
Standard Deductions increased: Married and filing jointly increased from $13,000 to $24,000. Single taxpayers and those who are married and file separately have an increase from $6,500 to $12,000. Heads of households went from $9,550 to $18,000.
Personal Exemption: The $4,050 personal tax exemption has been eliminated.
The top income tax rate changed: Individuals with incomes of $500,000 or higher will be at the new 37 percent top rate. Those filing jointly at $600,000 or up and married will be at the top rate. (The top tax brackets are found here.)
Child Tax Credit: It is now worth up to $2,000 per qualifying child. The age cut-off is still 17. (Children must be under 17 at the end of the year to claim the credit). The refundable portion is now only $1,400. The earned income threshold for the refundable credit is lowered to $2,500. Phase out for the child tax credit increases in 2018 to $200,000 ($400,000 for joint filers). The phase out applies to the new $500 credit for other dependents. (Child must have a valid SSN to qualify for the $2,000 Child Tax Credit.)
Home Equity Loans: It limits the deductibility of mortgage interest up to $750,000 of debt used to buy a home. It also does not allow deducting the interest on home equity loans.
Moving expenses eliminated: Once, over a million taxpayers claimed this deduction. This exemption has been totally scrapped. Only member of the military on active duty can claim this deduction.
Tax Preparation Fees are eliminated: Fees you paid to your accountant or tax preparer were once combined with other miscellaneous deductions and deductible to the extent the total exceeded 2% of your adjusted gross income. Unfortunately, this deduction has also been deleted.
Job expenses: In the past deductions for licenses, medical tests, tools, clothing and equipment were deductible. They can only now be deducted by the employer.
Parking and transit fees: Up to $255 per month from their employer towards parking and transit costs were allowed. Employers could also deduct these reimbursements, which were also tax-free to the employee. Employers can no longer deduct these reimbursements.
So, as you can see, filing your individual, married or business taxes from 2018 will look much different than they did in the past. Many of these changes will make filing less complicated for some and more complicated for others. If you are unsure of what you can claim, consult your licensed tax accountant or tax adviser.
Fall is a beautiful time of year. Holidays are around the corner and taxes are the last thing you want to think about. However, certain events can drastically change your tax liability. Now is the time to plan for these changes so that a large tax bill doesn’t sneak up on you.
Just like the leaves changing, things change during the year.A job promotion, new job, retirement, adding a new family member, or maybe an inheritance are some examples of significant events that may impact your taxes.
Here are a few reasons to contact us at A.K. Burton PC for tax planning services:
A change in employment. Any change in your earnings should have you reaching out to our office to discuss the best course of action. For example: when hired, you fill out form W-4 to set your allowances. Do you want one, two, or what does allowances even mean? By discussing the matter with us, we analyze and make the best decision with you.
Form of compensation. For example: a change in how your money is earned such as from an employee earning income that is reported on form W2 to an independent contractor being compensated by form 1099-MISC triggers a significant tax event. Contact our office to discuss the steps that you need to take as an independent contractor. One of those steps is making estimated tax payments based on your income.
Retirement. If you’re looking at retiring it is essential to contact our office and discuss what the change in income will be and what steps you’ve taken so far in the process. There are many options concerning your retirement and tax liability. Be especially cognizant of required minimum distributions once you turn 70 ½ years old. These distributions are required and the withholding that has been set up in the past may not be enough to avoid a tax liability. Contact our office to plan ahead and work to avoid unnecessary surprises.
Capital gains. A large gain from an investment may trigger a nasty surprise depending on your tax bracket and other income. Any significant change in investment income should be discussed with your tax adviser.
Investment property. There are many taxable situations that occur when dealing with a rental property. Many tax rules are not understood by other professionals to the extent of our staff’s knowledge. Before making the decision to sell that condo you’re renting out; contact our office and double check what tax consequences may ensue. It only takes minutes to shoot us an email or give us a call. You’ll be happy you did.
These are only some of the reasons to engage in year end tax planning with your tax advisor. Any significant change in your life should be discussed with your advisor as soon as possible. Year-end tax planning is a great way to wrap up the year and prepare for filing your taxes. At A.K. Burton, PC we specialize in year-end tax planning because it is a service our clients consistently rely on.
A.K. Burton, PC, which serves the Washington,D.C. and Bethesda, MD area, has experienced and licensed individual financial advisers who can help you with your year-end small business tax preparation. Contact us at (301) 365-1974 for more information or email us at firstname.lastname@example.org.