The new tax plan for businesses is solidly in place, but there are still a lot of questions being asked regarding if some of the activities that many businesses deduct “really” have changed. The short answer is yes!
There are a number of deductions that have been taken away, however, many of them appear to be balanced out by loosening of restrictions in other areas. Some of the changes may affect you more dramatically based on the ways you do business and cause you to change the way you do things involving your business, or quite possibly making it a good idea to hire a knowledgeable tax advisor to help you plan for these changes.
Here Are Some of The Ways Your Business Can Adapt to The New Tax Reform
You will have to control your income and profits. If your business is a pass-through business, like more than 90% of small businesses, you may benefit from a lowering of your taxable income from that business by 20%. This is meant to spur you to reinvest in your business or maybe even take on additional employees. However, many service type businesses, like doctors or lawyers, may not be able to take advantage of this in some instances so it’s important for you to understand how your business is regarded. Again, this is an area where your tax advisor can help to make sure you are using the most tax efficient strategies for your situation. It is also important to consider paying yourself “reasonable compensation so that you are maximizing your benefit.
You can grow your company. A large drop in the tax rate for C corps and the introduction of the Qualified Business Income Deduction for pass-through entities might not only make a real difference to your company, but in the way you do business with others. This friendlier tax base percentage might be able to keep companies from going overseas to operate and make it easier for your business to keep more of your income. Theoretically, this also might be the year you are able to start looking at expanding your business as you run projections for your profits and the associated savings in taxes. This year, many businesses should employ tax-savvy business advisors who can guide them on the path to growth in this still-complicated tax environment.
You Can Reinvest in Your Business. Now is a great time to put some money into your business as elements of depreciation under Section 179 have changed in favor for many businesses that want to purchase certain types of vehicles and even used equipment. There are exclusions of course and getting advice on not only what can be deducted but how to structure the purchases can make sure you maximize your deductions.
You May Change How You Give To Charities. The new tax laws have eliminated the business deduction for charity golf and other special charity sporting events. You can no longer deduct either participating in, or even attending a charity sporting event. You must now claim the deductions as basic charitable deductions, giving you a much smaller deduction than before. If you are involved in specific charities, there may be ways in which you can continue to help yet maximize your deductions.
You Can Start Talking. Presentation expenses are now completely deductible. While having an intimate dinner might be a great way to show one client how smart you are, presentations allow you to show lots of people also how smart you are. This can lead to better prospects being taken to those previously mentioned non-deductible meals. The big word in this deduction is “the public”. If you prospect and give a presentation to a small group of business owners, that is “the public”, and 100% of your expenses are deductible.
As you can see, there are many changes in the tax law that affect your business and can cause you to think about the ways you actually run your business. This should be the year you start to look for a tax advisor that can not only navigate the new tax laws, but the ways you actually structure your business moving forward to maximize your profits and reach your goals.