Prepare for Business Tax Season LIKE A BOSS
Still, when you’re planning out how you’re going to tackle getting your taxes done it’s vital to consider all your options to ensure you save as much time and money as possible, and reap all the new benefits small business owners are enjoying from Trump’s new tax codes (while avoiding all its flaws). For example, have you asked yourself these questions?
- Does your business qualify for an extension on repayment… and do you really need one?
- Would your business benefit from converting your business into a C-corporation?
- Do you qualify for business tax deductions that you’re not receiving?
Without further ado, let’s get right to it—here’s everything you need to know before the 2018 business tax season:
Business Tax Payment Deadlines
| Original Deadlines: Partnerships and S Corporations March 15, 2018 C corporations and individuals April 17, 2018 Exempt organizations May 15, 2018 | Final Deadlines (with extension): Partnerships and S Corporations September 17, 2018 C corporations and individuals October 15, 2018 Exempt organizations August 15, 2018 |
Alright, now let’s get to the big stuff.
Extensions: Great for Some, AWFUL for Others…
For Partnerships, S Corporations, and C Corporations that would still like an extension, you can request a 6-month extension through a Form 7004. Exempt organizations, such as nonprofits and charities, must complete a 8868 form to request a 3-month extension.
Notice how I didn’t put in any links to those forms up there—it’s on purpose. I want you to keep reading, because a lot of the time, getting an extension can wind up hurting more than helping small business owners.
The mere thought of getting an extension on paying business taxes hits small business owners like a shot of adrenaline straight to the heart. They hear the possibility of pushing off a tax deadline, and all of a sudden it’s the only solution to all of their financial problems. However, extensions, like spikes of adrenaline, are incredibly short-term solutions to a bigger long-term problem, and can be extremely dangerous if done wrong. If the extra time can help you gather all of the documentation and prepare without making mistakes, consider this extension as a life raft until you get your financials in order. Notice how I used the term “life raft”, not “luxury yacht.” There’s a huge difference. You could suffer from hefty penalties and interest on taxes due to miscalculation or errors from being in a rush.
However, if luxury yachts are your thing, I recommend you consider the benefits of getting your hands on small business loans with amounts and terms that can completely cover your business tax payments this year. Use a small business loan to pay off your taxes, and then pay them off on your own terms. Instead of freaking out over paying a huge sum of money in a matter of days, use small business loans to pay off your business taxes on your own terms. Pay them when you want, and how you want. Who knows, you might just save up enough capital to get that yacht mentioned earlier, or anything else for that matter—anything but a life raft.
“C” Corporations Have the Lowest Tax Rate – Do You Qualify to Convert?
Under the new tax revisions, C corporations will now have the lowest tax rate at 21%. Business owners are now considering converting to a “C” legal structure to leverage the lower rate. The process is easy to convert and can be done in less than a week.
Converting to a C corporation is dependent on the company’s profit, though owners need to ALSO acknowledge that there may be a double taxation element at the corporate and personal level. Consult with one of National’s Business Financing Advisors before making the final decision—they’ve got years of professional wisdom in the world of business financing to share!
Pros: Trump’s Tax Cuts & Jobs Act in 2017
Check these out to make sure you’re getting all the benefits you and your company deserves before tax season!
- Pass-Through 20% Tax Deduction: A pass-through company is considered to be a business with revenues and expenses that are passed through to the owner’s personal tax returns at individual rates. This differentiates them from C-corporations that pay a lower tax rate. According to Forbes, 95% of all businesses in the United States are operated as “pass-through entities.” If you’re a small business owner, make sure you have everything in place to take advantage of these deductions. Pass-through businesses can deduct 20% of Qualified Business Income QBI. Deduction is capped at the greater of 50% wages paid or 25% of wages paid, plus 2.5 depreciable capital assets. Deduction is capped at the greater of 50% of wages paid or 25% of wages paid plus 2.5% depreciable capital assets.
- Corporate 14% Income Tax Rate Reduction: The corporate tax rate has been decreased and cut from 35% to a flat rate of 21%. Additionally, the old individual tax rate of 39.6% is now at 37%. The “Alternate Minimum Corporate Tax” has also been eliminated beginning in 2018, which will significantly help businesses see a financial boost.Many new tax-law changes are expiring in 2025, but this corporate tax rate was extended and will last beyond the expiration date for business owners.
- Business Loan Interest Deduction Limited: Limited to a maximum of 30% of a business’ earnings before taxes, amortization, interest, and depreciation.
- Net Operating Losses Reduced Elimination of carrying back net operating losses from business operations two years. They can still be carried forward twenty years, but are now limited to 80% of taxable income.
- Research & Development (R&D) Expenditures Adjusted Instead of being 100% deductible in the year they are incurred, R&D expenses now have to be taken over five or more years – effective 2022.
- Historic Rehab Credits Payout Adjusted Buildings in historic districts are still eligible to receive a 20% credit on qualifying expenses, but instead of being paid out in a lump sum, it will be paid out over a 5-year period. For more info on how Trump’s Tax Codes are changing business tax policies, check out this infographic
Cons: Trump’s 2017 Tax Codes
I know, I know. Now we’re getting real technical. Stick it out like the boss you are, and learn how to conquer these business tax challenges like I know you can. Sound good?
- New Limits on Deductions Entertainment expenses are no longer considered a deductible (though, Office Holiday Parties are still 100% deductible).
- Business Interest Business can now only write off interest expenses that are equal to 30% of its adjusted taxable income. Exception is to small businesses with average annual gross receipts of $25 million or less for the three-tax-year period ending with the prior tax year. One of the largest takeaways – If business is financed through debt, it may not be as attractive anymore, moving forward you may not get the tax deduction or it may be limited. Make sure your debt-to-equity structure makes sense.
- Personal assets may decrease with returns Value of owner’s home might decrease, especially in states with higher state income and property taxes as a result of the new limit to tax deductibility on these fees. A home is typically one of a small business owner’s largest asset and may hurt their ability to borrow capital for their company. It is also speculated because of this that there might be mass migrations of consumers to lower-taxed states, which could significantly impact local retail businesses in 2018.
- Small business owners could face an increase in the Individual Tax Rate For those making between $200,000 and $425,000 – taxes may increase from 35% to 37%, which could directly impact small business owners.
Overwhelmed? Don’t be. National Business Capital & Services has a ton of great small business financing options that are saving small business owners time, energy and resources that would otherwise be wasted this 2018 tax season.
Crucial Points to Consider
I know, this is a lot to take in. If you’re sick of reading, call (877) 482-3008 to speak with an expert representative, and we’ll help you out with good ol’ one-on-one chat. However (Spoiler Alert) you’re so close to the best part! Either way, consider these 4 important points before making your kick-butt plan for business tax season:
- If Your Business Started as an LLC in 2017, Then Converted to a C Corp: If a company has converted from an LLC to a C corporation, the IRS gives all of the partners just three and a half months to file a short year tax return. They may also have to pay income taxes on any debts that transfer to the C Corp, with each partner owing an additional $195 per month on top of their own income tax liability. If a business owner has converted their LLC to a C corporation, they will want to work with a tax professional and corporate lawyer as soon as possible to consult on their tax changes.
- Was your business only active for part of 2017? If you started your business this year – it is important to know the date you began operating as a business and consult with a tax professional to review eligible deductions. You might not be able to deduct most costs before starting your business, but might be able to capitalize and deduct the costs over 15 years.
- If You Stopped Operating as a Business This Tax Year Track the exact date your business officially ends. Business owners should be able to account for all operational transactions before the dissolution of their business. The only cash or property that should remain in their business is the amount that is planned to be distributed to investors as it becomes further liquidated and the amount retained can be used to pay for final taxes. In either case, the business owner can file a short year return and is only responsible for filing taxes for the time it conducted business that year. The short year return is also applicable for some seasonal businesses.
- Foreign Relationships/Activities Outside of the U.S.: Business owners need to keep in mind the complex process for transactions or operations overseas. They must account for filing foreign subsidiaries, shareholders, partners, or financial accounts with strict deadlines. For example, U.S. Partnerships who have shareholders that are not U.S. citizens or residents who own more than 25% are required to file Form 5472. Filing late or failing to file correct or incomplete 5472’s for each qualifying foreign shareholder, along with a company’s income tax return, can amount to a monetary penalty of at least $10,000 per required shareholder per period! This is extremely important to keep in mind.
Contact National for All the Help You’ll Need This Tax Season
Give National Business Capital & Services’ Business Financing Advisors a call at (877) 482-3008 to get all the help and advice you’ll need with doing your business taxes before the summer comes to a close. Or if you’d like, apply for a small business loan to help you out right away by filling out our 1-minute, 1-page application, and get funded in as little as 24 hours!
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Sources:
https://blog.indinero.com/2018-business-tax-deadlines
https://www.nextiva.com/blog/how-small-business-taxes-are-changing-in-2018.html
https://www.valuewalk.com/2018/04/guide-business-taxes-2018/
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David Surrusco is a Content Writer at National, best known for his work in creating what has become the best blog regarding business growth known to mankind: The National Advisor.