Once you get the hang of preparing taxes for your small business, April doesn’t seem so challenging. That is, until tax laws change and suddenly you don’t know if you can still claim your small office deduction. When this happens, the need to hire a tax professional to prepare your return becomes a necessity, not just a convenience.
Not sure what to do about the tax changes that went into effect for 2018? The changes will remain in effect at least until 2025, so there’s no time like now to get acquainted with what’s new.
1. Hire a tax professional to do your taxes at least once
Hire a tax professional to do your taxes at least for the first year. You’ll have the opportunity to ask plenty of questions, get acquainted with the new laws, and they’ll tell you exactly what you can and can’t deduct. The specific advice from a tax professional is more trustworthy than what you might hear from other business owners.
For example, under the new tax laws, entertainment expenses can no longer be deducted, but meals still qualify for a 50% deduction, provided you’re not taking clients to an expensive restaurant for $200 a plate.
If your business expenses don’t generally change from year-to-year, once you have a tax professional prepare your return, you’ll have a better understanding of what you need to do next year. Tax laws can still change yearly, so even after you get a firm grasp on the new tax laws, it would be wise to consult with a CPA before filing your taxes.
2. Dig yourself out of any tax holes you may be in
If you’re already in a hole, don’t wait to dig yourself out. The new tax laws might put you further behind if you aren’t careful. It’s easier to let things go if you already feel hopeless or stressed about being in debt to the IRS.
Some tax situations seem complicated, but all tax situations can be resolved with the help of a tax attorney. For example, owing back taxes, being audited, and being unable to pay your taxes are all situations that seem daunting, but are easy to take care of. An IRS lawyer can even help you release a levy or garnishment due to economic hardship, but you have to make the effort to pursue a remedy.
3. Read multiple explanations of the new laws
If you’re not a tax expert, it’s important to educate yourself, yet not to take information at face value. Read as many explanations and summaries as you can regarding the new tax laws from pro sources like Turbo Tax and Jackson Hewitt. You’ll gain a more comprehensive view of the new tax laws by reading from multiple sources. For instance, Turbo Tax explains the elimination of personal and dependent exemptions than Jackson Hewitt, but Jackson Hewitt explains several lesser-known impacts like not being able to deduct college athletic event seating.
Review summaries and explanations provided by people like Dave Ramsey, which includes sample calculations for specific situations to help you understand how the new laws might affect you.
4. Read official legislation and documents
Whether you agree that the tax reform will have a positive impact or not, read everything you can get your hands on regarding what the new tax laws are intended to accomplish.
Read the official documents detailing the tax plan’s original goals, the Tax Cuts and Jobs Act bill, and Publication 5318 from the IRS titled Tax Reform: What’s New for Your Business. Publication 5318 is packed with information on the new corporate tax provisions, qualified business income deductions, depreciations, business-related losses, real estate taxes, tax credits, information for S Corporations, farm provisions, and more.
What’s most interesting is in Publication 5318, you’ll find information few people have picked up on. For example, page 7 describes “Qualified Bicycle Commuting Reimbursement.” It reads, “Under the new tax law, employers can deduct qualified bicycle commuting reimbursements as a business expense for 2018 through 2025. Employers must now include these reimbursements in the employee’s wages.”
Adjust your business strategy if you’re paying higher taxes
If you’re surprised to be paying higher taxes, perhaps it’s time to revisit your business strategy. If you haven’t begun turning a profit, and now you’re paying more taxes, consult with a professional to amp up your success; these new tax laws will be around for a while.