As anyone who runs a small business can attest, taxes can be complex and frustrating. With IRS rules constantly changing and more and more regulations being put in place, small business owners definitely have plenty to keep track of when tax season arrives. If you are a small business owner who is preparing for yet another exhausting tax season in 2019, here are eight steps you can use to gain a better understanding of the taxes that apply to your business.
Taxes and Legal Entity
Depending on the type of legal entity your business is, it can have a significant impact on your taxes. For example, in 2019 one of the most complex areas involves S corporations and C corporations. With an S corporation, business owners can pay taxes at the shareholder level, rather than at higher corporate rates. However, with a C corporation, a wider range of expenses can be deducted. Thus, it’s important to review this each year to see if a change may be beneficial.
More Deductions are Available to You
In 2019, more deductions will be available to small businesses. One of the biggest changes involves providing healthcare to employees, since the costs associated with doing so can now be deducted on your taxes. In addition, other changes have come regarding home offices or paying rent on a building, so keep these in mind as well.
In 2019, the startup expenses associated with your business can offer more deductions than you expected. For example, you can now deduct investigation costs associated with market research, product analysis, and other related areas. In addition, you can also deduct costs related to employee training, locating suppliers, and attending trade shows and seminars.
If you are a sole proprietor, S corporation, or a partnership, pay close attention to your estimated payments in 2019. If you expect to owe at least $1,000 in taxes, make sure you submit at least 90 percent of the taxes you owe. Otherwise, you’ll be paying stiffer penalties and higher interest.
Getting a closer look in 2019 from the IRS, self-employment taxes will be more complex than ever. However, remember that as a small business owner, you can claim half of what you pay in these taxes as an income tax deduction. Also, by using every available expense as a deduction, you can limit your net income, resulting in a smaller tax bill.
Since almost all small businesses use a vehicle for certain tasks, many of these costs can be deducted. However, a change has been made by the IRS regarding expenses related to vehicle costs such as gas, oil changes, and other maintenance. If you choose to use the 2018 IRS standard mileage rate of 54.5 cents per mile, you won’t be required to keep records associated with these costs.
Commissions and Fees
For the most part, commissions and fees are fully deductible. However, commissions earned from selling real estate are not. Instead, they are recovered through depreciation costs, and are simply added to the existing property costs. For other commissions and fees, it’s best to report them on Form 1099-MISC.
Meals and Entertainment
While in the past many businesses have used expenses for meals and entertainment very loosely on their tax returns, that’s going to change in 2019. Due to the misuse of these expenses, the IRS has ruled no deductions can be used for entertainment costs. However, if you’re traveling on business and have meal expenses, they are still deductible at a rate of 50 percent.
Since these rules are always subject to change from the IRS, it’s always best to not only have excellent bookkeepers on your staff, but also make the investment to hire an experienced and knowledgeable accountant for your business. By doing so, you’ll have somebody whose main job is to keep track of the latest tax changes and how they will impact your business. While it may cost a bit to hire these services, it’s usually far better than being hit with penalties and fines for not knowing the IRS rules.