‘Tis the season for tax tips for small businesses
'Tis the season for Tax Tips
It’s that time of year once again. Besides family visits, christmas gumbos and trips down memory lane, it’s also another special time of year. You guessed it - Tax Time.
With Tax filing season and the end of the year rapidly approaching, hopefully you’ve already met with your CPA to discuss what you could be doing to keep more money in your pocket.
And if you don’t have a CPA, come see us, because you're probably leaving money on the table.
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Year End Tax Tips for Small Business Owners
We’re Washington Advisory, your local Lafayette based CPA practice. One of our main practice areas focuses on addressing the needs of independent contractors and small businesses through tax planning.
So to help you with your year end to dos, we’ve put together a shortlist of year end tax tips and reminders for independent contractors and small businesses owners.
Year End Tax Tips for independent contractors and other small businesses
Timing of your purchases at year end
In 2016, Congress renewed the Section 179 deduction to encourage spending by businesses.
What this means is the cost of a business asset in some cases up to $500,000 can be fully written off, versus being depreciated over multiple years.
The benefit doesn’t just apply to the purchase of a vehicles used in your business but to printers, computers, office furniture and equipment.
For example the cost of a business vehicle, computer equipment, office furniture purchased between Jan. 1st through Dec. 31st, in most cases can be fully written off. Without Section 179 the cost of the asset would be depreciated over 5 years, versus being expensed mostly in the first year.
However depending on your situation, a long term strategy may benefit you more than expensing the asset fully.
Contact your CPA or drop us a line, if you have any questions on what type of property qualifies or to discuss how this all fit into your long term strategy.
Have a business? Buy gifts for your clients. They’re deductible
If you have great clients, reward them with a gift. It generates goodwill and is also tax deductible. Officially you can deduct up to $25 for a business gift given to a client.
But there are ways to getting around the $25 max deduction, to really reward your “A-list” clients.
Give the gift to a business entity vs. to an individual
If your business provides a gift to the company versus the an individual, then the $25 limit does not apply. So for example if you were to give a holiday gift basket to local company with a gift certificate to some of Lafayette's finest establishments, it would be deductible.
Gifts to a husband and wife
In the situation where you have a business connection with both spouses and the gift is for both them, the limit doubles to
There are other qualifying ways to reward your favorite clients, but as always document, track, and ask your CPA to be sure.
Other Year End reminders
Keep up to 6 years of your receipts and records.
6 years may seem like a long time, but the IRS has up to 6 years to look back into your supporting documentation during an audit. This “lookback” time period has changed from 3 to 6 years, as recently confirmed by several rulings from the Supreme Court and Congress.
So if you file and shortly trash the support, we need to talk. But besides the IRS’s requirements of recordkeeping, keeping your past year returns comes in handy.
I’ve had many clients whose prior year returns left money on the table and benefited from a review and amendment we put together.
Deducting your work clothes
On the surface knowing the rules of what to include in this expense category may seem like a “no brainier”. But like usual most things involving the IRS requires some explanation. To deduct the purchase of your work clothes and uniforms, the IRS states that the below requirements be met.
To be able to deduct your work clothing you must wear them as a condition of your employment and the clothes can't be suitable for everyday wear.
On the surface this may lead you to be believe that the cost of your professional attire (e.g. the suit you wear to client meetings) may be deductible, but in most cases it isn’t.
When in doubt use the following as a rule of thumb for this category.
If your employer doesn’t require you to wear the clothing you're trying to deduct then in most cases it can’t be deducted.
As always there are many “grey areas” in the tax code and you should have at a minimum a yearly checkup with CPA to revisit your situation.