The holiday season is upon us and after being completely worn out by election season - we're ready to haul out the holly, put up the tree, light the menorah, or build a good looking snowman (whatever the case may be)! And arguably one of the best parts of this season is looking ahead to the New Year and finding ways we can be just a little bit better, which often entails maximizing our businesses.
Not to be a total buzz kill, but it seems that managing our taxes more effectively should make our list of resolutions this year. According to Scott Zubrickas, Co-Founder of WageFiling, taxes are less predictable in 2017; small changes that are going into effect January 1 could have a large impact on small businesses.
Here are some things you might want to consider doing this year.
1. Make Use of Section 179
The Section 179 Deduction law allows an instant depreciation deduction privilege of up to 50% on business equipment in the first year. For the purposes of bonus depreciation,
company equipment, such as vehicles, must be used for at least 50% business purposes each year. Section 179 offers relief for small businesses who plan on buying more equipment, as it helps to reduce the cost.
Interestingly, for company vehicles, the larger you buy, the bigger the write-off. So, it might be a good idea to think about investing in a minivan or SUV. The maximum first year write-off for large, new cars is capped at $11,160, whereas for used, lighter vehicles it's only $3,560.
2. Apply for a Health Insurance Rebate
Kasey Edwards, Co-Founder and CEO of Helpr, discovered a simple way of using tax rebates to save money. Edwards explains: "There is an insurance broker hack - companies that have been with the same healthcare provider for an extended period of time without receiving a change in policy rate, can apply for a rebate from their health insurance provider."
It might sound like a small way of saving money when it comes to filing your taxes, and it is. But if you provide health insurance for several employees, the funds add up to money better invested in new initiatives and generating more business.
3. Be Aware of New Deadlines
A slap on the wrist for your if you're not paying attention to tax deadline changes.
It's vital to know when it's time to return your tax report if you want to avoid a penalty! Previously, businesses were allowed to submit their W-2s or 109's electronically by March
31st (or January 31st when filing by paper forms.)
Now the deadline has changed, and the date for both paper and electronic tax filing is January 31st. Anything past that new date can incur a late fee of $260 per form. If you think you'll need more time to fill out these forms (or don't want to spend your holidays filing taxes), you can apply for an extension. For businesses filing a 1099-misc form, you can apply for a 30-day extension for free.
4. Think About Your Location
"Location, location, location" may be a famous maxim in real estate, but it's important for small business taxes as well. Andrew Henderson, founder of Nomad Capitalist has a few suggestions for using your location to your advantage. "You can do this in a number of ways," he shares:
First of all, if you work overseas, you could become a tax non-resident in your home country. For US citizens, being a tax non-resident can be as simple as spending 330 days outside of US borders in any 365-calendar day period. So, if you plan on working overseas, you can qualify for the Foreign Earned Income Exclusion, and be exempt as much as $101,300 from your annual taxes.
If you're no longer living in the United States, you can earn your money in an offshore company. All too often, entrepreneurs and consultants living overseas earn money in their personal name, or through a corporation in their home country. But setting up your business up in another country could save you thousands in taxes. There's a reason you left Uncle Sam behind, so it's time to say goodbye to your US LLC, as well.
Having an "offshore company" doesn't necessarily mean heading to some tax haven in the middle of the ocean. The EU member country of Estonia, for example, has a great tax system for businesses in which Estonian corporations pay zero corporate tax on reinvested earnings.
Finally, if you don't have a physical office, use your lack of location to your advantage by earning your own location-independent income stream. If you run a digital business, or work as a freelancer, you can create income for yourself that is not tied to a physical location. Which means dollars in tax savings.
5. Find Out if You Qualify for the ACA Credit
Miguel Farra, principal of the Tax and Accounting Department at MBAF, advises you to find out if you qualify for the ACA credit for small businesses. This is a credit that helps you pay for your employees' health insurance premiums. Under the Act, a "qualified small employer" is a firm with 25 or fewer full-time employees, whose average annual wages are less than $50,000.
A word of warning if you're trying to avoid paying employee healthcare or Social Security by hiring independent contractors. The Department of Labor recently clarified the definition of an independent contractor vs an employee, so make sure you're using the classification correctly. The penalty for failure to provide qualifying health insurance for full-time employees is much higher this year.
I know you've got the holidays on your mind right now and it's a lot of information to digest. But make a resolution to dedicate more time to your tax filing in 2017 - and before the end of January, to miss any penalties. Filing your small business taxes correctly can lead to more revenue for your business and greater chances of success. Here's to a prosperous 2017 full of health, wealth and tax credits!