6 Year-End Tax-Planning Questions Entrepreneurs Should Ask to Maximize Their 2018 Savings You can realize big savings if you understand the details about the Tax Cuts and Jobs Act of 2017. So, don't wait until year's end.
By Tom Wheelwright •
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With 2018 being the first year that the Tax Cuts and Jobs Act of 2017 will impact tax returns, entrepreneurs shouldn't wait until the last minute to review their tax strategy. To help provide guidance, here are six year-end tax-planning questions small business owners can use to maximize their savings this year.
Related: Grading the Tax Cut and Jobs Act: What It Means for Small-Business Owners
By talking to a tax advisor now, entrepreneurs can potentially save hundreds of thousands of dollars in the years to come by understanding this major tax reform law, and taking action before the end of the year. There is a lot of confusion over what has changed, and a thorough review of your tax strategy with a professional advisor can result in significant savings now and into the future. Here are the five topics to look at and the related questions to ask:
1. State deductions
The question you should ask: If I live in a high-tax state, what are my alternatives to paying tax as a business instead of personally? Paying tax as a business may increase your state tax deductions or make state tax-credit contributions in your business tax-effective. By making these changes, you may avoid the limitation on individual state-tax-credit contribution deductions.
2. Home offices and automobile deductions
The question: Can I establish a home office to increase my automobile deductions? Most people don't realize that when they have a home office, that fact can increase their permitted automobile deductions. Because commutes aren't deductible, walking 30 feet to your home office can be your commute; then, driving to the office or appointments becomes deductible as travel.
3. Automobile deductions
The question: If I need a new car, what about an SUV? If you buy an SUV or truck weighing over 6,000 pounds, you can take advantage of the 100 percent write-off of the business-use portion. For example, if you buy a BMW X5SUV in 2018 for $80,000, and 80 percent of its use is business-related, you can deduct $64,000 in 2018.
Related: 5 Investments You Can Make With That $1.5 Trillion in Tax Cuts to Grow Your Company
4. Retail inventory deductions
The question: If I own a retail establishment, should I change my accounting method to maximize new inventory deductions? The new tax law specifies that a small-size retailer (less than $25 million in sales) can elect to treat his or her inventory as "non-incidental" materials and supplies. With the right inventory-tracking tools, the owner may create significant tax savings with this new rule.
5. Legally shifting income to children
The question: Can I legally shift some of my 2018 income to my children to reduce my taxes? If you have children, and pay them a salary, this money can be taxed at their tax rate. This rule applies legally only to earned income (as opposed to unearned income, like interest income and income from a business those children own passively). Children have a 10 percent and 12 percent tax bracket in the United States, and a $12,000 standard deduction, which means that the first $12,000 they earn is tax-free.
6. Finding the right tax advisor
The question: What credentials should I look for in an advisor?
With the new tax law, using the right tax advisor is more important than ever. While most businesses only talk to an advisor once or twice a year, great tax advisors have regular strategy meetings with clients to discuss goals and approach. They are passionate about both the tax laws and the client's future. While most accountants think in a straight line, a really good accountant finds creative (and legal) ways to use the law to save the taxpayer money.
The best tax professionals are always CPAs, or certified public accountants. Most business owners should use a CPA because these professionals are the most knowledgeable and passionate about reducing taxes. Only a thorough diagnosis by a tax professional will lead to major tax savings.
Related: How the New Tax Law Affects Private Equity and VC Firms
To help more entrepreneurs and small business owners navigate the Trump tax law changes, check out our newly updated Tax-Free Wealth 2nd Edition (August 2018). More detail and examples have been added to make the new tax law easy to understand. And while you should always consult with a great tax advisor, this book will provide you baseline information so you know what questions to ask your advisors.
