Experienced Small Business Accountant - As year-end approaches, each business should consider
the many opportunities that might be lost if year-end tax planning is not
explored. A business may want to consider several general strategies, such as
use of traditional timing techniques for delaying income recognition and
accelerating deductions. A business should also consider customized strategies
tailored to its particular situations.
For the 2017 tax year, taxpayers have relative clarity
with respect to available credits and deductions. With the exception of a
handful of industry specific tax credits and deductions that expired at the end
of 2016, most temporary credits and deductions were permanently extended by the
Protecting Americans from Tax Hikes Act of 2015 (PATH Act). A few others were
extended for 5-years through 2019. Far less clear, however, is the possibility
of the enactment of tax reform legislation by year’s end. The final scope of
such legislation, if enacted, remains unknown. At a minimum, tax reform
legislation is expected to result in a reduction of corporate and individual
tax rates. However, whether such reductions would apply to 2017, as well as to
2018, will remain uncertain, likely until late December. Nevertheless, much of
the preparation for these contingencies should begin now.
The last few days of the year provide an important
“last chance” to change the final course of your businesses tax year before it
closes for good. Among the reasons why year-end tax planning toward the end of
2017 may be particularly fruitful are the following:
Business credits
and deductions. Many
business-related tax credits and deductions that were scheduled to expire after
2015, were permanently extended by the PATH Act. Others were only extended one
year and are not available for the 2017 filing season unless extender
legislation is enacted. A few were extended for a five-year period. Taking
inventory of what deductions and credits your business has been using and
whether they remain available or will be removed in the near future can
significantly impact your bottom line. For example, one major tax deduction for
many businesses is bonus depreciation. Property placed in service in 2017 is
eligible for bonus depreciation at a 50% rate. The rate is reduced to 40% in
2018 and 30% in 2019. Bonus depreciation expires after 2019. Talk of “full
expensing” under tax reform also belongs in this mix.
Repair
regulations. In 2013, the IRS issued
final tangible property regulations (a.k.a., the “repair regs”) on accounting
for costs to acquire, repair and improve tangible property. The repair regs
impact virtually all businesses by providing the rules for distinguishing
between capital expenditures and deductible repairs or other types of
deductible expenses. While taxpayers were expected to file change in accounting
methods using the automatic consent procedure to retroactively comply with the
repair regs for their first tax year beginning in 2014, taxpayers that are not
yet subject to a capitalization audit may continue to file these accounting
method changes using certain automatic consent procedures.
Payroll tax credit
for small businesses. The IRS issued
guidance in early 2017 explaining how a qualifying small business may elect to
claim a payroll tax credit of up to $250,000 in lieu of the research credit.
This election is useful to a business with no income tax liability against
which to claim the research credit. The business must have less than $5 million
of gross receipts in the election year and must not have had gross receipts in
any tax year that precedes the five-tax-year period that ends with the tax year
of the election.
This new option was available for the first time to
any eligible small business for their 2016 tax year. However, those who already
filed their 2016 return still have time to choose this option. Under a special
rule for tax-year 2016, a small business that failed to choose this option and
still wishes to do so, can still make the election by filing an amended return
by December 31, 2017.
Business use of
vehicles. Several year-end
strategies involving both business expense deductions for vehicles and the
fringe-benefit use of vehicles by employees require an awareness of certain
rates and dollar caps that change annually. Changes affecting 2017 include a
drop in the standard business mileage allowance rate to 53.5 cents-per-mile,
down from 54 cents-per-mile for 2016. The maximum depreciation limits for
passenger automobiles first placed in service during the 2017 calendar year
remain the same as 2016.
“Gig” economy. Approximately 2.5 million taxpayers are now earning
income each month in the “gig” economy, also commonly referred to as the
“sharing” or “on-demand” economy. Participation continues to swell and is
expected to double by 2020. In recognition of the increasing importance of the
gig economy, the IRS opened a “Sharing Economy Tax Center” this year on its
website. It also is reportedly stepping up its audit coverage of taxpayers
working in the “gig” economy.
Affordable Care
Act. Despite Congressional
attempts to repeal the Affordable Care Act (ACA), the basic structure of the
ACA for businesses, both large and small, generally remains intact. If an
employer is an applicable large employer (ALE) based on the previous year’s
employee head-count, employer shared responsibility provisions and employer
information reporting provisions are triggered. Small businesses, however, are
not unaffected by the ACA and should take the ACA into account in year-end
planning. Some incentives in the ACA could help maximize tax savings for small
businesses. Planning now, both to qualify for 2017 incentives and to meet 2018
compliance requirements, is advisable.
Tax reform on the
horizon. President Trump ran on a
platform of consolidating and reducing individual tax rates. The Trump/GOP
“framework for tax reform,” released in late September, would reduce the
maximum corporate rate to 20 percent, eliminate the federal estate tax and the
alternative minimum tax (AMT), as well as limit the maximum tax rate applied to
the business income of small and family-owned businesses conducted as sole
proprietorships, partnerships and S corporations to 25 percent. It will
likely remain unclear until late December whether tax reform will happen before
the end of 2017, and if so, whether the law changes will be temporary or
permanent and whether they will be prospective or retroactive.
These are just some of the considerations that can
yield tax savings for your business as year-end 2017 approaches. Please feel
free to contact our offices so we can discuss specific 2017 year-end strategies
that might be particularly worthwhile for your business.
If you have questions, ABA Tax Accounting is always here. Please do not hesitate to call me, if you have any other
questions or need further guidance. Call us for a free consultation at
651-300-4777.
No comments:
Post a Comment