2018 is all over, and if you're like my smartest clients you're focusing on ways to cut your taxes for 2019.
You're not? That's a shame, because your taxes count for, what, 20 to 30 percent of your income, right? They're probably your single biggest expense in a year. But with a few moves now you can minimize this expense. What moves? Try these:
1. Buy capital items.
Most small and medium-size companies can deduct up to a million dollars of purchases for capital equipment, certain autos, computers, off-the-shelf software, and other business property using the Section 179 accelerated depreciation rules. But the secret here is that you don't actually have to buy it all with your cash. Even if you finance a capital equipment investment (and interest rates are still attractively low) it's still deductible. You just need to make sure the item is put into service by the end of the year.
2. Take advantage of the Work Opportunity Tax Credit...while you still can.
The Work Opportunity Tax Credit is a little-known benefit, but a powerful one. If you hire someone who has been long-term (more than six months) unemployed, or off of welfare, or a veteran, or who qualifies under a number of other criteria, you can take up to a $9,600 credit--that's a credit, not a deduction--for that person's first year wages. The calculation is complicated, so make sure to find an accountant or attorney who's familiar with the process. And do it fast--the credit is expected to expire at the end of this year.
3. Use the R&D Tax Credit.
The research and development tax credit is not just for "research" companies. It's for any company that spends money on product development, improvements, samples, and testing. The credit--which factors in employee wages, materials, contractors, and overheads incurred in your "research"--has been recently expanded to include more businesses and, although not easy to do without experience, can save you significant amounts of taxes if you do this type of work. Like the work opportunity tax credit, it's best that you use an accountant or attorney familiar with the calculation. Don't need the credit this year? No problem; you can carry it forward to years where profits are (hopefully) higher.
4. Max out your retirement plans.
Thanks to tax reform, the government will now give employers with fewer than 100 employees a $500 tax credit for three years just for starting up a 401(k) retirement plan. Even if you already have a defined contribution plan, you should make an effort this year to maximize your contributions. Do this by encouraging your employees to contribute more so that you don't fall under discrimination testing limitations.
5. Help with tuition.
Many employees need help paying for higher education, and the IRS has some ways you can do this tax-free. You can reimburse an employee's tuition expenses (which can be related or not related to your work) for up to $5,250, and that amount is deductible to you yet still not taxable to the employee. It's a great benefit to offer that could help you attract that new employee or improve the skills of your existing staff. You should also consider starting a 529 plan where employees (and you) can contribute after-tax money and watch it grow tax-free as long as the money is ultimately used for either higher education expenses or the costs of a private or religious school for themselves or a family member.
6. Adjust your estimates.
By now, your accountant has already broken the news as to how much money you owe for 2018 and how much your 2019 estimates will be. Just remember, however, that these estimates are, well, just estimates. They can be changed. So make a date to meet again with your accountant at the end of the summer with an aim to reviewing your year-to-date financials and projecting out the rest of the year. Not only will your accountant offer some tax strategies that still have time to be implemented, but you may want to consider increasing or decreasing your estimates based on how the year is going. You definitely don't want to underpay the government. But then again, you don't want to overpay either.
So happy tax day. Hopefully these tax moves will save you a few bucks in 2019. Just remember, though, if you find yourself paying more taxes than last year, despite the savings from 2017's tax reform, it's likely because the economy is good and your business is making more money. If that's the case, good for you.