Tax season means different things to different people – it can be welcomed by an individual waiting for a refund, or dreaded as a time to dig deep in your pockets for the IRS. For small to medium sized businesses (SMBs), you've hopefully already met with your tax advisor or accountant to make sure you've accounted for all your business receipts, are aware of all your potential deductions, and dotted all your I's and crossed all your T's during the fiscal year. A tax advisor with experience coordinating and implementing financial strategies for both businesses and individuals will be on top of the latest tax laws and legislation–something you as an individual may find hard to do.
There are a multitude of things you should be looking at as a small business, but for most SMBs it's best to keep things simple and be sure to get advice on your individual business structure from a tax advisor you can trust.
So, how can you be ready for the April 18th tax deadline?
In speaking with Joe Brine of Thomas P. Craig, CPA Tax & Accounting Services recently about proactive tax savings opportunities for SMBs, we asked what are a few things a small business should be thinking about as the April 18th deadline
approaches. Although the nuances may differ based on type of business or industry, we'd like to share 3 top tax tips for a SMB to consider this season:
Tip 1 – How You Handle Startup Costs Can Have an Impact.
As any new business owner will tell you, it's expensive to start a new business. The IRS says
that start-up costs are the amount paid or incurred for creating an active trade or business, or the investigation of creating or acquiring an active trade or business.
- Startup costs can be deducted up to $5,000 in the first year as long as expenses are under $50,000. If you are above $50,000 – for example $52,000 – only $3,000 can be used to hit the $55,000 limit.
- If you have more than $5,000 in the first year, you can amortize the amount. Consider profitability in year one when determining how to handle.
- There are also organizational costs involved in forming a corporation, partnership, or limited liability company (not a sole proprietorship). You can take up to $5,000 in additional deduction for small business organizational expenses up to $50,000.
If you didn't seek advice when structuring and launching your small business, now is the time for consultation, before you file taxes, on whether it is best for your business to amortize startup costs over a 60-month period or deduct the costs in year one.
Tip 2 – Invest in Yourself as well as Your Business.
Depending on the type of small business, you should strongly consider putting money aside in a simple employee plan, or SEP, and do so before
taxes are filed. These plans are similar to IRAs and according to the IRS, the contributions you make to each employee's SEP-IRA each year cannot exceed the lesser of:
- 25% of compensation, or
- $54,000 for 2017 ($53,000 for 2015 and 2016 and subject to annual cost-of-living adjustments for later years).
A tax accountant can help you with the particulars such as limits applied to contributions you make for your employees and a special calculation to determine contributions for yourself
if you are self-employed.
Tip 3 – Take Advantage of the Section 179 Deduction While its Riding High.
The accelerated depreciation deduction can be utilized up to a half million even if you put one dollar down on a qualifying business asset. This is great news for a SMB that purchased and put into service software or equipment by December 31, 2016, and is something that you should be taking advantage of for your 2016 tax filing.
For the 2016 tax year, Section 179 allows deductions up to $500,000 on up to $2,000,000 in capital expenditures. Watch this 2-minute Section 179 video
to learn more about this deduction for 2016.
There are many ways businesses can look to maximize deductions, however Section 179 is one that can really make a difference. Ascentium Capital has developed a quick "Frequently Asked Questions" guide to Section 179
to help you think about your tax savings.
If you found you've missed out on deduction opportunities for the 2016 tax year, don't let the same thing happen in 2017. Frequent conversations with your accountant and tax advisor will help you prepare for the year ahead. To learn about 2017 tax incentives, you can view credits & deductions for businesses
on the IRS website. Ascentium has also developed a 2017 Section 179 tax deduction calculator
Is your company's 2016 tax bill higher than you expected? Or you'd prefer to use your available cash to invest in your business? Ascentium Capital can help with a small business loan up to $250,000. Pay taxes and still invest in your business with a convenient, fixed payment schedule.
Contact us today to see how Ascentium Capital can help your SMB.
Ascentium Capital does not provide tax advice. Consult with your tax advisor regarding specific tax incentives related to your own business.