As a new year rolls around, many businesses look back at 2018 with a mixture of emotions. While some were encouraged by the strong economy and robust hiring figures, others might feel a bit blue after reviewing their company’s financial results. No matter how things turned out in the final quarter of last year, small businesses can take solace in the fact that it wasn’t as bad as they had feared. Regardless of whether their year was a success or a bust, there are several ways that businesses of any size can try to reduce their tax liability for the coming year. There are several ways that businesses can reduce their tax liability for the coming year. First and foremost, any company that has been operating for more than a year can amend their tax return for the previous year. This is an administrative review that allows businesses to correct mistakes on their tax return, or to amend it with a view to lowering their tax liability. Alternatively, if the IRS has already audited a company’s tax return for the previous year and made a determination on what the tax liability should be, then the company can appeal that decision and ask for a lower amount based on additional information or evidence that they can provide. Some business owners may even find that appealing a tax assessment is worth their while because the IRS often waives the penalty for underpayment if the appeal is successful. The next few paragraphs discuss some of the ways that businesses can lower their tax liability for the coming year.
In December 2017, the federal government announced a temporary tax break for businesses with less than 500 employees. The tax break, known as the “paid leave” or “payroll tax holiday,” allows businesses with fewer than 500 employees to reduce their tax liability by up to $500 for each employee. This break is available for both new and existing businesses, and it is effective through December 31, 2018. The $500 credit is available per employee, not per worker. In other words, if a company has 10 employees, they can claim $5,000 in tax relief. This break is particularly useful for the restaurant industry, where the cost of payroll is typically among the highest in all industries. The IRS estimates that small businesses will save $2.3 billion as a result of this tax break. The downside of this break is that the credit is non-refundable.
There are several deductions that you are allowed to take for your business. For example, you might be able to deduct the cost of office space and utilities, or the cost of travel related to your job, such as attending conferences or training for new employees. While these deductions are allowed, there are some limitations. For example, the IRS imposes strict rules on the amount of time that you can claim certain work-related expenses. The IRS also imposes strict rules on the amount of compensation for which you can take a deduction for employee benefits. If you are in doubt about whether any of your deductions are legitimate, it’s a good idea to consult a tax professional. Some deductions are straightforward, such as the cost of office furniture or the cost of travel related to your job. Others, such as the cost of employee benefits, can be complex. If you are in doubt about any of your deductions, it is a good idea to seek professional advice.
If you offer healthcare benefits to your employees, you will also be responsible for paying taxes on the cost of those benefits. While healthcare benefits are a great benefit for employees, they are also a great way for companies to reduce their tax liability. To be specific, you can take a tax deduction for an amount equal to 50% of the cost of providing healthcare benefits for your employees. This is known as the “Hiring Incentive,” or Hiring Incentive Credit. If you meet certain criteria, you can also claim a credit of up to 30% of the cost of providing healthcare benefits for your employees. The only downside to providing healthcare benefits is that you will be responsible for covering any shortfall whenever an employee requires medical coverage but cannot afford the full cost.
The standard deduction is a fixed amount that you can claim each year as part of your tax return. If your standard deduction for the current tax year is lower than your actual deductions, you will not have to pay any tax. In 2018, the standard deduction for most taxpayers is $6,200 for single filers and $12,400 for joint filers. This is far lower than the amount of deductions that you can claim for the year. For example, the cost of your business travel and the cost of office supplies can easily exceed $6,200 in a single year. If your standard deduction is lower than the amount of expenses that you can claim, you can claim the difference as a deduction. You may also be able to claim a higher standard deduction if your income from self-employment significantly exceeds the amount that triggers the higher standard deduction. However, if you are a partner in a partnership, you cannot increase your standard deduction.
Depreciation is a way to allow businesses to take an annual deduction for the wear and tear that their assets experience. For example, if you own a car, you can take a deduction for the amount that it is depreciated each year. The amount of depreciation that you take is calculated by using a formula that takes into account the type of asset, its useful life, and the rate of depreciation for that type of asset. If your business is relatively new, the IRS allows businesses to deduct the entire cost of their depreciable assets. However, if your business has been in operation for more than three years, you will be able to take a depreciation deduction only for the assets that are actually used in your business. There are several important exceptions to the general rule that you can deduct the entire cost of your depreciable assets. For example, if you purchase an asset at a considerable amount of money, the IRS will not allow you to depreciate the full cost of the asset. If you are in doubt about whether you can deduct the full cost of an asset, you should consult a tax professional.
As you can see, there are several ways that businesses can lower their tax liability for the coming year. Small businesses can also file their taxes electronically and receive their tax refunds faster than with the traditional paper form. While some of these strategies may be useful in a given year, the IRS is always changing its rules. As a result, it is important to stay on top of changes in the tax code to make sure that you are not getting hit with unexpected tax liabilities.