The foliage is starting to turn, football is back on TV, and pumpkin spiced donuts and lattes have arrived. Fall is here and taxes are probably the last thing on your mind today – but consider this: assessing your current tax situation and financial issues now can prevent problems in April 2019 by minimizing your tax liability.
Good tax planning with your Fuoco advisor by your side can minimize your tax liability through the best use of all available allowances, deductions, exclusions, exemptions, distribution and conversion strategies. Mid-way through the business calendar is a good time to make an analysis of cash flow, borrowing needs, capital expenditure requirements, and to see how performance for the last 6 months stacks up against your budget and projections. It doesn’t hurt for business owners to also examine retirement planning, succession planning and exit planning, as well as the potential of business restructurings or mergers.
Small business owners can find it difficult to carve out time for financial management, but if you don’t make time for tax planning you may be passing up opportunities to save on taxes come March and April 2019.
Here are a few of Fuoco’s favorite Fall tax planning tips:
1) Estimate your income, keeping in mind any bonuses or other income items that may come your way around the holidays. If you are retired, consider all of your taxable income in your projection. Income for retirees could come from pension, IRA distributions, Social Security, interest income, etc.
2) Review your tax withholding. It may have made sense for wage earners to withhold less if they itemized deductions, but that may no longer be the case since the standard deduction has roughly doubled to $12,000 for singles and $24,000 for married-filing-jointly.
3) Speaking of deductions, review your expected deductions and charitable giving plans because this year will be different due to tax reform. Itemized deduction changes include a $10,000 cap on the amount of state and local taxes you can claim, and the outright elimination of miscellaneous itemized deductions like unreimbursed employee expenses and investment fees. There is a threshold for mortgage interest deductions now too. Be sure to read our prior article on tax reform and charitable giving here: http://www.fuoco.com/resources/tax-alerts/340-charitable-giving-strategies-and-solutions
4) Consider tax harvesting. Each dividend or interest payment as well as any capital gains realized can impact your tax situation. Now is a good time to review the total amount of capital gains that have been realized in your taxable accounts so far this year. If you have gains, try to offset them with any losses that you may have in your portfolio now. This strategy is called tax loss harvesting. You may might want to sell some securities that will produce a loss to offset gains.
5) Should you be accelerating tax deductions and deferring taxable income? The goal is not only deferral of income tax, but also that of possibly having the income taxed at a lower rate. In some cases, depending on how your business has performed this year, the opposite could be true – accelerate income and defer expenses if you expect to be in a higher tax bracket in future years.
6) Discuss large transactions with us beforehand, such as real estate sales and purchases that might have major implications for capital gains taxes. We may have advice on how to structure the transaction to save taxes.
7) Go through the accounts receivable and identify what is uncollectable. If trying to defer income, defer sending out invoices until the end of the year so that income is included in the next year’s tax filing instead.
8) Look at your depreciation schedules to see if there are assets that you no longer own. There might be write-offs.
9) Examine if your business is operating under the most tax efficient entity format. You may want to elect to be taxed as an S-Corporation in light of Section 199a. See our prior article here: http://www.fuoco.com/resources/tax-alerts/344-tax-reform-tax-break-for-pass-through-entities
10) Consider a 401(k) plan or other small business retirement plan. If you don’t already have one, it might make tax sense, financial sense (and good sense) to establish one.
11) If new equipment or business vehicles are needed, should you purchase sooner (this year) rather than later? New higher depreciation limits will allow you to write off more for some types of vehicles. The recent Tax Cuts and Jobs Act (TCJA) made numerous changes to depreciation and the treatment of fixed assets. Many of the changes are beneficial to taxpayers and allow for immediate tax deductions. Bonus depreciation increased to 100% for assets acquired and placed in service after September 27, 2017. For the 2018 tax year, the new tax law significantly increased the annual Section 179 deduction and property threshold.
12) You may want to hold off on renovations. Qualified Improvement Property rules hit a glitch with TCJA. QIP should now be depreciated over a 15-year life (vs 39yrs) and is eligible for both bonus depreciation and section 179. This is a significant change because building improvement once taken over 39 years can now be fully written off in the year of the improvement. The final bill, sets a 15-year life for QIP, but TCJA inadvertently omitted some language. This will be addressed as a technical corrections, but the timing is unknown – we will keep you posted.
13) Take a look at whether your business qualifies for work opportunity tax credits or the research and development tax credits. We can help you determine eligibility and assist with the necessary documentation.
Tax laws and regulation changes are hard to track for many busy business owners. That’s why we urge you to work closely with your Fuoco Group CPA on relevant tax and accounting issues, as well as lifestyle changes. Tell us about income changes, marital status changes, a new business or a new baby! Did you buy a house, a boat, incur large medical expenses? Planning for life’s expected and unexpected events can save you money later. But waiting until December might be too late to influence your 2018 tax bill.
CONTACT US: Most people think of the spring as tax season. But when the autumn leaves are falling up North, or Florida temps start to cool off, is the best time for business owners to engage in tax planning, especially now that tax reform is a reality. You don’t want any big surprises come Spring of 2019! Contact us toll free to set up a tax planning appointment at 855-534-2727.