Small business Owners put blood, sweat and tears into their business every day. Fall is the time to plan to minimize your tax bill for 2019, legally. Get informed and in control of your tax situation. These are general year-end business tax planning tips. It is critical to consider your personal and business circumstances before implementing any ideas.
- Cash in on the higher section 179 deduction by investing in equipment. Need to place in service these assets by December 31. This year a business can elect to write it off under tax code sec 179 up to $1,000,000. Wisconsin does not allow bonus depreciation but does follow Federal Sec 179 limits.
- Invest in a passenger vehicle. New last year, you now get a bigger depreciation expense for passenger vehicles. If acquired and placed in service after 12/31/18 and used over 50% for business, depreciation is $14,900 for Year 1, $16,100 for year 2, $9,700 for year 3 and $5,760 for year 4 and thereafter. There is an $18,000 first-year bonus depreciation available as well. If you don’t use the vehicle 100% for business, these allowances are cut back proportionately.
- Establish or expand a retirement plan. For those just starting you may be able to claim a tax credit for setup costs of SEP, SIMPLE IRA or qualified plan. Consider making a discretionary profit-sharing contribution. To be tax deductible the contribution must be made no later that the tax return file date.
- Maximize the new deduction for pass-through income. You could avoid paying taxes on 1/5 of your business income. The calculation is complex and can be an all or nothing option – so plan. There are limits on service business income and different calculations for those with more than $315,000 married and $157,500 single taxable income. Consider reviewing your current tax structure to provide the lowest tax liability.
Be sure to claim all your expenses and tax credits
- Vehicle expenses. You can choose between deducting the business portion of the actual costs or deduct 58 cents per business mile. A written mileage log of business and personal miles is required.
- Hire family. If you have children or other family members that assist with the business, it is possible to shift the income to someone with a lower tax bracket. Remember the wages must be reasonable given their age and work skills.
- Office in the home. If you work out of your home in a space used exclusively for business you can write off a prorated amount of your home costs. The deduction is limited to the taxable income, though costs can be carried forward.
For small business owners it is impossible to separate personal and business tax planning. Be sure to read part 2 personal tax elements in October’s newsletter.
TO get a plan in place for you contact us for a “Tax Strategy/Tax planning” meeting to discuss and explore the full implication of the items mentioned above. The requirements can be complicated and may yield different results based on your unique situation.
This is not tax advice; it will not help you avoid penalties that may be imposed by law.
Mary Guldan-Lindstrom, CPA