2018 End-of-Year Tax Tips for Business Owners

by Admin | Nov 14, 2018 | financial tips, Taxes

The Tax Cuts and Jobs Act (TCJA) is in full effect this year, which means eligible businesses will be able to take advantage of a variety of new deductions, including a 20% deduction of qualified business income for pass-through entities like sole proprietorships, partnerships, limited liability companies, and S corporations.

The McAllen CPA, Abigail Y. Murray, offers you 5 end-of-year tax tips for business owners looking to take full advantage of the TCJA.

Tax Tips to Reduce Your Income Tax Bill

100% Bonus Depreciation

The TCJA made 100% first-year bonus depreciation a very real thing. Now, businesses can write off the entire cost of some or all of the assets they acquired in 2018. This can be applied to long-term assets placed in service after September 27, 2017. Additionally, this bonus depreciation may be applied to purchases of used property as well as new.

You might also want to consider making some additional purchases between now and year’s end – which isn’t that far away.

Section 179 Deduction Rules

For property placed in service beginning in 2018, the TCJA increased the maximum deduction under Section 179 to $1 million. Qualifying properties and expenditures must be placed in service in tax years beginning after 2017 and includes:

Property used for furnishing a lodging (i.e. hotel, motel, apartment house, rental condo, etc.) such as furniture, kitchen appliances, lawn mowers, and other equipment.
Qualifying real property expenditures includes improvements to the interior portion of a nonresidential building placed in services after the date it was originally placed in service.
Qualifying expenditures for roofs, HVAC equipment, fire protection and alarm systems, and security systems for a nonresidential real property.

Defer Taxable Income

If you are anticipating staying the same (or lower) bracket rate next year, that are a number of strategies that you can take to defer some of your taxable income until 2019 including:

Use credit cards to pay recurring expenses that you would pay next year. You can claim these deductions for your 2018 tax bill.
Use checks to pay some of your expenses; you can mail out these checks a few days before the year ends and taxes rules say that you can still deduct these expenses.
If you’re going to make a major purchase, it is in your best interest to send the check via certified mail so that you have proof that it was purchased in 2018.
If you have trustworthy customers, consider sending out invoices until a few days before the end of the year. You won’t receive payment until 2019 and can defer this taxable income for that year’s tax bill.

Pass-Through Business Income Deduction

Eligible businesses can benefit from the new tax deduction for the first time in 2018. This new deduction is dependent on qualified business income (QBI) from pass-through entities and can be up to 20% of an owner’s QBI.

Pass- through entities include:

Sole proprietorships
Single-member LLCs treated as sole proprietorships
Partnerships
LLCs treated as partnerships
S corporations

This deduction is only available to non-corporate taxpayers.

This QBI deduction can get complicated so it is in your best interest to contact the qualified McAllen business tax professionals at Abigail Y. Murray, CPA, LLC.

Set Up a Retirement Savings Plan

Eligible business owners are able to set up employer-sponsored retirement savings plan including SIMPLE IRA, SEP IRA, 401(k), and profit sharing plans. While these different options vary in how much the employer and employee can contribute and the ease of establishing one, oftentimes, contributions are tax-deductible for the employee and business.

Small businesses may also benefit from additional tax credit deductions related to the cost of starting up a retirement savings plan. Taxpayers generally have until they submit their 2018 tax return to contribute funds.