Business Owners – Tax Updates and Tips

As we approach April 15th, many business owners may still be wondering what the impact will be of the Trump Jobs and Tax Act, on 2018 taxes. Many file extensions and have not yet determined whether your tax liability is up or down. Our analysis of other small business owners across the country is there are some nice benefits but the net effect has not been very dramatic.

Here are a few of the changes.

Loss of the entertainment deduction: the commonly taken advantage of “Meals and Entertainment” deduction is no longer allowed as it has been in the past. However, with proper documentation, this can be still utilized in certain situations.

Having the appropriate compensation (salary) is still important. Ensuring that you have an accurate compensation report can help prevent you from paying too much, or too little salary to the business owner. Maintaining a reasonable salary is critical to staying in compliance with IRS regulations as well as, structuring your income to be able to achieve the maximum Qualified Business Income Deduction.

Mileage Reimbursement: even small business deductions and reimbursements can add up. The mileage deduction has increased from 54.5 cents last year to 58 cents per mile in 2019.

Privately held insurance companies can be impactful to the business planning process as it relates to a reduction in tax liability and an increase in wealth accumulation. This strategy must be done properly and IRS guidelines/safe harbors must be followed. While implementing this, it will be crucial to not only use the correct structure but also to avoid errant structures in order to prevent governmental scrutiny.

The use of multiple corporate structures allows the Business owner the best opportunity to maximize the changes and to be as efficiently structured moving forward. The loss of Personal Exception, QBI phase-outs, State and Local Tax deductions capped at $10,000 as well as, the loss of Entertainment Deductions makes it imperative that you be structured in a way to take advantage of the new deductions to offset the ones we lost.

There are a couple of tax incentives that do remain and are stronger than ever. One is for owning commercial property and the other affects any employer who hires and has employees. However, these are specialized incentives and most businesses are missing out.