Business tax strategy which included meals and entertainment was once a mainstay for the business owner’s personal lifestyle. Seldom did he need to dip into the household budget for great basketball seats, charity event give-away tickets or a nice meal at the latest martini lounge with clients who might also be close friends. What happened to change all this?
The Tax Cuts and Jobs Act of 2017 (TCJA)
The TCJA made headlines by cutting corporate taxes that raised cheers among business owners who envisioned opportunities for a more level playing field as they competed against one another and offshore and import businesses. It seems this promise didn’t come without some surprises.
The main shocker for business owners, especially those operating smaller businesses, was the fine print and complex tax laws. Many of these business owners are finding it almost impossible to navigate the tangled trail leading to that level playing field without having a guide. That guide, as it turns out, will most likely be wearing the attire of a CPA, one who specializes in financial and business management and flexible, strategic tax planning.
Going up against the IRS? Your guide better be able to read a compass and have a good nose for the trail.
The DIY’er could easily get off the path when trying to plan a business tax strategy.
As a business owner, you and your bookkeeper may know how to operate Quickbooks and be able to formulate a pretty clever Excel spreadsheet. That doesn’t mean much now. About all you can really do is look back to the 2017 tax year and remember that you got a great tax deduction for sending the bookkeeper to a day-long workshop, lunch included. You can still attend seminars in 2018, but pay close attention to what they’re teaching, who you’re sending, and that everything meets the criteria as tax deductible.
What makes the new tax laws so “difficult” for business owners to understand?
No disrespect intended, but when most of the CPAs in the USA are still asking the IRS for clarification to the new tax laws, what makes the owner and operator of the best coffee house in town think she’s got it figured out? When the IRS eliminated the 50% deductions for meals and entertainment, they also set into motion a new set of laws which permitted meals and entertainment to be 100% deductible.
Without the benefit of proper financial and business planning and seriously strategic tax strategy, business owners could lose tax advantages, credits and previously simple deductions. That could result in a devastating tax liability. To make matters worse, the cost of professional tax preparation is non-deductable for the 2018 tax year, whereas business-related legal and financial counsel may be deductible.
The IRS may well be counting on small business owners’ unwillingness to consult, accept and pay for highly trained professional advice. Without such help, these businesses will not receive the full benefits of the complicated new tax laws and will pay more taxes than necessary; thus providing the IRS with needed tax revenue lost to businesses which can follow the new laws. Large businesses have always relied on highly trained CPA financial, business management tax specialists to handle their business tax strategy. These are the businesses which will benefit enormously from the new tax laws. Small business owners, especially the remaining mom and pop shops, have historically considered such expenditures as expenses rather than investments and have never benefited from aggressive business management and strategic tax planning.
Ever thought of proactive business management counseling lowering your tax burden AND lowering the cost of your non-deductible invoiced cost of your business and individual filing charges? That is Strategic Tax Planning 101.
As early as February 2018, the IRS began advising business owners that the IRS is not able to keep up with ever-changing tax laws regarding deductions or non-deductions for 2018. The IRS has further advised that in all likelihood they will be unable to pass this information along in a timely manner. Simply stated, as a business owner, you may not know about changes in time to do anything about them. CPA tax specialists receive this information almost immediately.
Will a business tax strategy ruffle employees in 2018?
Here are a few things to consider:
- Prior to 2018 meals were 50% deductible and under the new law, they are generally 50% deductible. Define generally.
- No more deduction for business entertainment. Are you sure your next training seminar isn’t too entertaining?
- Will your employees appreciate that a moving allowance is now considered income? Taxable. Bracket changing? Who knows? An employee may not want this type benefit.
- How is the conversation going to sound with employees when you start trying to explain new tax laws regarding transportation fringe benefits? Where does pretax salary reduction fit into this?
How is losing business deductions a good business tax strategy?
Easy. Or at least for the financially savvy CPA tax specialist with business management expertise. That’s the kind of stuff we do. Do you want to know how you can be helped by changes this year and in the coming years? Are you sure you’ve got a handle on your business tax strategy? Here are a few things to think about:
- If you’re a C corp, you’re looking at a 21% flat tax, and the special tax rate for personal service corporation is eliminated. Interesting?
- Another biggie is the deduction for qualified business income from “pass-through entities,” which also applies to sole proprietorships and, get this, rental properties. You’re looking at a deduction of up to 20% of your net qualified business income. This is one area that will require some serious discussions of tax strategy to maximize.
- Retroactive to September 28, 2017, 100% of newly-acquired assets, whether new or used, can be deducted. Previously, used assets were not included.
- Although the Section 179 expense has been increased to $1 million with a phase-out of $2.5 million, there could be a better choice; a more gradual expensing depreciation option. Know when, how and why this might apply to you?
- And also remember that there is no longer a corporate alternative minimum tax.
Absolutely. If you’re sure how business tax strategy applies to you and your business and how it relates to your individual tax filings and future tax strategy, that’s amazing. If you’ve also got a thorough understanding of all 500+ pages of the new tax law (which the IRS hasn’t figured out yet) and are willing to go toe-to-toe with the IRS and prove THEY ARE WRONG if a client gets in trouble, you might want to consider closing your great coffee house and joining our team.
What’s the bottom line?
This isn’t just about business tax strategy and meals and entertainment. That part just opened the door to this discussion of the problems and issues caused by the massive tax reforms which every taxpayer in the U.S. is struggling with today. If you’ve never consulted a CPA tax, financial and business management specialist or considered setting a course based on strategic tax planning, now is the time to do it. Tax laws and opportunities have changed dramatically and will continue to do so. Stay prepared, flexible and in control.
Our goal is to become part of your overall life and business goal planning team so that you’ll be able to establish your own goals and know that you have a trusted professional on your team. We establish and maintain a personal and business relationship with our clients. Your LIFE is your business and your BUSINESS is your life. We’re here for YOU.
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