It’s not too late to save money on 2018 business taxes
NEW YORK (AP) — Small business owners who are uneasy about their 2018 taxes might find they can save some money even though the year is over. Here are three ways you can chip away at your tax bill:
ARE THERE SAVINGS TO BE FOUND IN YOUR BOOKS?
Owners with sloppy records will not only find it harder to compile their returns, the haphazard books may be costing them money — they may overlook expenses that will lower their tax bills. Tax advisers recommend hiring a bookkeeper or an accounting student to organize everything and be sure all your information is entered correctly into an accounting program. An investment in a bookkeeper is likely to be a lot cheaper than taking time away from your business to sort things out, and far less expensive than asking your accountant to straighten them out for you. Cleaning up your books now also lessens the likelihood of mistakes that could result in an unexpected bill from the IRS down the road, plus late payment penalties and interest.
NEED MORE EXPENSES?
While companies can no longer buy equipment or prepay bills for 2018, they still can make contributions to employee retirement plans and deduct the money on their 2018 returns. If they obtain a six-month extension, they have until Sept. 16 for partners and S corporations, and Oct. 15 for sole proprietors and C corporations, to make the contributions.
The extra time is available to companies with Simplified Employee Pension, or SEP, plans; Savings Incentive Match Plan for Employees, or SIMPLE plans; and the more complex plans known as qualified plans. Owners can also set up SEP plans by the September or October due dates and then make contributions. The other types of plans must have been in existence by the end of 2018 for a business to claim the deduction.
You can learn more about retirement plans in IRS Publication 560, Retirement Plans for Small Business. You can find it on the IRS website, www.irs.gov .
CAR AND HOME OFFICE DEDUCTIONS
Owners who run companies out of their homes and use their own cars for business have choices in how they claim deductions for each. Run the numbers under the different methods, and you might find that one gives you a bigger break.
The home office deduction can be claimed by determining the percentage of a residence dedicated to exclusive and regular business use. An owner then adds up the actual expenses on the home, such as mortgage or rent, taxes, repairs, insurance and maintenance, and applies the percentage to that sum. That is the deductible amount.
Alternatively, the owner multiples the number of square feet dedicated to the business, up to 300 square feet, and multiplies that number by $5. That amount can be deducted, and the owner can also deduct mortgage interest and taxes as usual on Schedule A, Itemized Deductions.
You can learn more about home office deductions in IRS Publication 587, Business Use of Your Home.
Similarly, owners determine how much of a car’s use is for business, and multiply that percentage against actual expenses like gas, insurance, repairs and loan interest or leasing charges. Or an owner may want to use the standard mileage rate of 54.5 cents for 2018 (it’s 58 cents for 2019) and multiply the percentage against that.
You can learn more about deducting the use of your car in IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.
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