It is that most un-wonderful time of year: tax time. April 15 may be a bit far away, but as a small business owner, you need to get your documentation for 2016 together as soon as possible. Your tax professional will thank you.
By the way, one of the changes for next year includes moving a filing deadline from April 15 to March 15 if your business structure is a pass-through. More on that later. First, here is a rundown of the documents you need to gather for your accountant.
Prepare for Your Tax Preparer
If your files are organized, you should not have any trouble finding any of these documents to support your next tax return.
- Gross sales receipts
- Sales records for accrual based payers
- Business checking and savings account statements or 1099-INT
- Returns and allowances
- Documentation of any other income
Costs: Goods Sold
- Inventory purchases
- Beginning and ending inventory total dollar amounts
- Items removed for personal use
- Materials and supplies
- Transportation and travel expenses, local and away from home
- Commissions paid to subcontractors with Form 1099-MISC or 1096
- Business insurance
- Interest expenses
- Professional fees
- Office supplies
- Rental expenses
- Home office
- Wages to employees with Forms W-2, W-3, 940, etc.
- Employee benefit expenses
- Contractors: Form 1099-MISC or 1096
- Other expenses: repairs, maintenance, estimated taxes paid
- Health insurance
Once your tax return is complete, go over it with your accountant or tax professional and ask questions about anything you need to be clarified.
Ask where the figures for income were derived from and whether there was income that was not taxable? What deductions were allowed? What expenditures did not qualify as deductions and why?
Find out if there are other deductions you could have made if you had the proper documentation. Also, determine if your retirement contributions are maximized.
The better you understand your taxes, the more organized and strategic you can be in the future.
Potential Tax Changes for 2017
Tax law changes constantly; a good accountant or tax attorney will keep up with the changes, but you should look out for your own interests as well. Several changes are in the works. It's left to be seen if they are all carried out.
As mentioned earlier, the filing dates for S-corporations, partnerships, and LLCs are moving from April 15 to March 15.
The filing deadline for C-Corporations has been pushed back from March 15 to April 15. Along with potential decreases in taxes, the deadline changes may encourage more businesses to become C-corporations.
Either way, if you miss the deadline, immediately pay what you estimate you owe and request an extension.
Tax Refund Delays
A new federal law designed to reduce tax fraud and identity theft will create a delay in refunds for certain early filers. The Protecting Americans from Tax Hikes Act of 2015 section 201 states “no credit or refund for overpayment for a taxable year shall be made to a taxpayer before February 15 if the taxpayer claimed the Earned Income Tax Credit or the Additional Child Tax Credit on a return.”
The PATH Act mostly impacts middle and low-income taxpayers who file early in 2017. It requires that the entire refund due those claiming either tax credit be delayed until at least February 15 to allow the IRS time for an extra look at this sector of taxpayer returns.
You will also be required to submit additional documentation to support the tax break claim.
Tax Break Extensions
The PATH Act also made the $500,000 deduction for equipment purchases of less than $2 million permanent. Section 179 expensing, as it is known, has also added items to the list of qualifying property, such as off-the-shelf software.
Instead of regular depreciation over the course of five years, you can take the full cost of the qualifying equipment as a deduction if it was placed into service in the same tax year and is used more than 50% of the time for business.
On the other hand, bonus depreciation will be phased out incrementally through 2020 when it sunsets under PATH. For 2017, you can only claim 50% depreciation and the percentage reduces to 30% in 2019.
The Work Opportunity Tax Credit has been extended by PATH through 2019. An additional 40% credit up through $60,000 in wages can be claimed by employers who hire workers who have been out of work at least 27 weeks, including military veterans.
Businesses that make less than $50 million annually and invest substantially in research may apply the Research and Development Tax Credit to the Alternative Minimum Tax (AMT) or could potentially use the credit to offset payroll taxes.
Social Security Taxes
The cap on taxable income subject to the combined 7.65% tax rate for Social Security and Medicare increases in 2017 from $118,500 to $127,200. The maximum amount of Social Security tax a taxpayer could pay increases from $7,347.00 to $7,886.40.
If you are self-employed, you must pay both the taxpayer amount and an equal amount for the employer match.
Corporate Tax Changes
It is possible corporate taxes will decrease when Donald Trump takes over the Presidency in January 2017. A Republican-controlled Congress is likely to follow his lead.
The current corporate tax rate is 35%; it is anticipated to drop as much as 20%. However, it will only apply to C-corporations. Most small businesses, such as LLCs and S-corporations that are pass-through entities for tax purposes will not be subject to or impacted by the decrease.
We may see the number of tax brackets to reduce from seven to three and the AMT and Net Investment Income tax may be eliminated. Taxpayers may want to accelerate certain purchases into 2016 instead of holding off until after January 1, 2017.
Affordable Care Act Changes
One of the promises the Trump camp made during its campaign was to repeal and replace so-called "Obamacare." You may find significant changes to business regulation in general, but repeal of the ACA will likely be prioritized.
Tax Tips for Small Business for Next Year
The first tip is to think about taxes year-around instead of in a flurry of activity in late winter each year. Waiting too late can cost you some money saving opportunities and options.
Second, hire a professional to help you through the maze of tax laws and identify tax breaks and deductions you might miss on your own. Third, keep up with the news related to new laws, including tax law. Your tax professional should keep up, also, but nothing beats knowing it yourself.
Finally, never assume anything. Those potential changes in tax law mentioned earlier? Do not assume they will occur and do not put your tax plan together as if these changes have already occurred.
Prepare for 2018 by tracking your expenses better, planning ahead for any big changes on your horizon, and set money aside every month to pay taxes and reduce the burden of coming up with the money at the last minute.
Ask questions, always. Tax law and businesses change every year. You should try to keep up.