There are less than two weeks left in 2018. But, if you’re running a small business, you still have time to make a few moves that could reduce your tax bill. Here are a few that you should consider:
Revisit your estimated payments
If you’re like me and most other business owners, you probably own a pass-through business, like an S-corporation, limited liability company, or partnership. If so, then you may be able to take advantage of a hefty new deduction that will exclude up to 20 percent of your business income from taxation. Also, if you’re earning up to $200,000 individually or $400,000 married filing jointly a year, you may also be looking at lower personal income tax rates. So, have you adjusted your estimated payments?
Now that we’re almost at year’s end, you probably have enough information to have your accountant do a forecasted income statement and tax return. Depending on how your year went, and combined with new deductions and lower rates, you may find that your taxes decreased in 2018. Which means that you may be able to reduce your last estimated tax payment for the year that’s due Jan. 15. Why give the government money when you don’t have to?
Buy capital equipment
Changes to the tax law this year will allow most small businesses to deduct up to $1 million for the purchase of qualified new or used capital equipment. That includes machinery, computers, software, and office furniture for your business. There are also new and increased deductions for buying autos. And here’s the great thing: You don’t need to pay for it all in 2018. All you need to do is put the equipment into service by the end of the year and you’ll likely be able to qualify for the deduction.
If you’ve got your eye on a piece of machinery or technology for your business, especially if you’ve been having a profitable year and need more deductions to offset income, buy it now. Speak to your banker or a leasing agent and finance it before interest rates go up further. Get it delivered and up and running by the end of the year and take the full deduction.
Max out your savings
Your retirement plans are still the best way to save money on your taxes. If you’re self-employed, then contribute as much money as you can into a SEP IRA. The rules allow you to put up to 25 percent of your net earnings up to $55,000.
If you have a 401(K) in your business, then encourage your employees to contribute as much as they can — or consider making bonus payments directly to their retirement accounts. That way you can contribute more to your 401(K) account without failing any of the discrimination tests that prohibit owners or other higher-paid managers from saving more money than lower-paid workers. Don’t have a 401(K) in your business? Under the new tax law — and as long as you have fewer than 100 employees — you can get a $500 credit against the taxes you owe for the next three years just by starting one.
Also, consider starting or contributing more to a 529 Plan. Yes, these contributions are made after-tax, but the rules will allow your savings to not only grow tax-free, but be withdrawn without any penalties as long as it’s used for higher education, including — and this is new — private- and religious-school tuition.
Bonus tip ...
Hire your kids over the holiday break. You’ll get to spend some quality time together and teach them the value of an honest day’s work. Now that the standard deduction has been doubled you may also be able to pay them — and take a tax deduction — for up to $12,000 and, assuming they have no other income, they won’t owe federal taxes on that amount. Just remember to take that paycheck out of their hands and stick it in a savings account before they spend it on an Xbox.
Gene Marks is a certified public accountant and the owner of the Marks Group, a 10-person technology and financial management consulting firm in Bala Cynwyd.