Recent Tax Reform Savings Opportunities You May Have Missed

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Tax reform savings for small businesses

Welcome to tempCFO’s Pot of Gold. In this series, you’ll learn quick, actionable tips to protect and build your company’s capital and personal finances. Whether your “pot of gold” is figurative or literal, these tactics will better enable you to maximize your wealth.

Today we’re highlighting a few ways the most recent federal tax reform law—the Tax Cuts and Jobs Act of 2017—made it possible to save more on your taxes.

Maximize Your Tax Savings in 2020

The words “tax reform” cause most people to tune out immediately. They (correctly) think of taxes as overly complex, so they (wrongly) assume any federal effort to overhaul the tax code is basically meaningless to the average American.

Don’t be like most people.

The latest tax reform law, the Tax Cuts and Jobs Act (TCJA), did change taxes for the majority of Americans. Almost everyone got a tax cut. In fact, many people are currently paying the lowest taxes of their lifetimes.

And beyond the obvious reductions, the TCJA presents numerous opportunities to save money at filing time—especially for business owners. By taking advantage of some of the new options written into the US tax code, you can potentially hold onto thousands you would have otherwise paid to the IRS. Here’s how:

If You Own a C Corporation…

  • Take advantage of a historically low corporate tax rate. Under current law, C corporations pay a maximum of 21% in income taxes—the lowest since the 1930s. Most C corps pay less than 21%. If you’ve been putting off business growth plans out of fear of increasing your tax burden, it’s time to lay that fear to rest and hit the gas. Hire more employees. Move to a bigger facility. You won’t be penalized for it.
  • Defer business income. Given that the income tax rate will stay at 21% year after year, C corporations can now confidently postpone income tax payments without the risk of facing a higher rate next year. (Note that your business must be eligible to use the cash accounting method in order to do this.)
  • Deduct the costs of qualified business assets. The TCJA temporarily raised the first-year bonus depreciation for certain property to 100%. That means many kinds of property—from heavy equipment to building expansions—can be fully expensed in the current tax year, so long as you acquired the property and put into use sometime between September 28, 2017 and December 31, 2022.

If You Are Self-Employed (a Sole Proprietor) or Own Another Kind of Pass-Through Business (S Corp, LLC, or Partnership)…

  • Don’t assume you’ll save more by itemizing your deductions. The recent tax reform law doubled the standard deduction, making it the best option for many taxpayers. It may no longer be worth it for you to go through your receipts, separate personal from business costs, and itemize every expense. Regardless, your tax and accounting partner can do the work for you and determine your ideal strategy.
  • Create or expand your retirement plan. The TCJA upped contribution limits for contributions to retirement plans, including 401(k) plans and individual retirement accounts (IRAs). You can put away even more money this year than you did last year, reducing your taxable income as a result.
  • Think about converting to a C corp. If you read the section above, you already have an idea of how C corp owners are well-equipped to save on their taxes. But while the C corp structure presents numerous potential benefits, it’s not the best choice of entity for every business across the board. Discover whether converting to a C corp is the right choice for your business.

No Matter What Kind of Business You Own…

Talk to a tax and accounting professional. The financial experts at tempCFO can help you prepare your taxes, minimize your tax burden, and ensure compliance wherever you do business. Learn about our tax planning services.

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