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Best Tax Practices to Start Now

Best Tax Practices to Start Now

With 2019 going by at breakneck speed, now might be a good time to consider some new tax practices that can benefit your business both in the near and long term. Here are some best tax practices to start practicing now that will allow you to grow your enterprise and add to your business success.

Choose the Right Business Entity

Choosing the right business entity can have a major impact on your tax obligation. The Tax Cuts and Jobs Act of 2017 reduced federal corporate taxes from 35% to 21%—a whopping savings. If your business is registered as a C corporation, you should be seeing a steep decline in your tax bill.

But the new tax law didn’t stop there. It offered a qualified business income deduction of 20% to business entities with pass-through income. This includes sole proprietors, partnerships, limited liability companies (LLCs), and S corporations.

If you’re just starting a business, or even if you’re just now considering a change, you have some entity options to consider. Talk to an experienced tax accountant to determine the entity that best fits your business goals.

Pay Enough Estimated Taxes

Now that your income may be higher, you’ll want to make sure that you pay enough quarterly estimated taxes to cover your tax liability for the year. That goes for both the IRS and any state or local taxes you’re obligated to pay. Failure to pay enough estimated taxes can result in penalties for underpayment.

The easiest way to ensure that you pay what you owe is to submit at least 100% of the tax you paid the previous year, unless you’re reasonably sure that you are going to earn significantly less. If you think you’re going to make less, calculate about how much and try to pay at least 90% of that amount.

Consider a Reimbursed Employee Business Expense Plan

If you have valuable employees, you probably want to keep them around as long as you can. Now that the new tax law has eliminated certain job-related expenses, your employees may feel a bit of a tax squeeze when it comes to deductions they used to be able to claim.

One remedy is for you, as the business owner, to set up a reimbursed employee business expense plan. This expense reimbursement process enables employees to make purchases they need in order to carry out their jobs. You can either advance cash to employees for future purchases (with unspent money being returned) or you can reimburse them after the fact.

Your employees get the tools they need without having to worry about paying taxes on them, while you get the benefit of deducting the expenses from your company taxes and lowering your tax bill. Remember to get documentation, like receipts or invoices, to back up any deductions you plan to take.

Some states, like Illinois and California, actually require you to reimburse employees for expenses, so it’s good to be aware of employment laws in your home state to know whether you’re in compliance. Of course, only certain expenses are allowable under IRS guidelines.

Locate to a Different State

This probably seems drastic and likely the last resort. But one way to make your business tax dollars work harder for you is to relocate to a state with tax laws that are more business-friendly. Some states collect no corporate or individual income tax, while others have low tax rates – any of which can allow you to put more cash back into your business. Other states don’t collect sales taxes, which may allow you to offer more competitive pricing on your goods or services.

The Tax Foundation lists these states as being most tax-friendly for businesses: Wyoming (no corporate or individual income tax), Alaska (no individual income tax or sales tax), South Dakota (no corporate or individual income tax), Florida (no individual income tax), Montana (no sales tax), New Hampshire (no sales tax), Oregon (no sales tax), Utah, Nevada (no corporate or individual income tax, but gross receipts are taxed), and Indiana.

Get Some Help

Sometimes the best move you can make is to let someone else do the work. Getting assistance with tax matters can save you time and money in the long run, not to mention reducing the stress you feel in trying to run your business.

A tax accountant who knows your business and takes a personal interest in your success is invaluable. So is one who can streamline your accounting practices and introduce you to technology that gets the job done quickly while offering you access to data that helps to propel your business forward.

Published: July 9, 2019

Source: 1800 Accountant

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1800Accountant is a national accounting firm that assists small and new businesses in all 50 states, Canada, Australia and the UK. Our mission is to provide small businesses with affordable accounting and tax preparation services. Our experienced team of over 100 in house tax professionals is ready to start working for your business today. Call for a free consultation.

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