Maximize Your Tax Refund For Small Businesses. By Juliet Kong, Enrolled Agent Kuha o Business Center, Molokai, January 29, 2019

Transcription

1 Maximize Your Tax Refund For Small Businesses By Juliet Kong, Enrolled Agent Kuha o Business Center, Molokai, January 29, 2019

2 TODAY S WORKSHOP WILL COVER: 1- Find All Possible Tax Deductions to Maximize Tax Deductions Tax Deductions lower your taxable income and are equal to the percentage of your marginal tax bracket. For instance, if you are in the 25% tax bracket, a $1,000 deduction saves you $250 in tax. 2- Find All Possible Business Tax Credits Tax Credits provide a dollar-for-dollar reduction of your income tax liability. This means that a $1,000 tax credit saves your $1,000 in taxes. A Tax Credit is always worth more than a dollarequivalent Tax Deduction. Please ask questions during the presentation as needed. Save more individual questions to the end. Slides are available for instant download at

3 The key components that go into calculating your tax bill or refund are: Business Deductions Business Credits Filing Status Tax Bracket Withholding Exemptions/Adjustments

4 1) Find All Possible Tax Deductions to Maximize Tax Deductions As a small business, you may qualify to take deductions that are not available to an individual. Many business expenses can be deducted from your income. This helps you save money when it comes time for taxes, since less income means less money that you have to pay taxes on. The IRS does not have a master list of everything a business can deduct. Instead, the IRS simply defines a business expense as anything that incurs a cost of carrying on a trade or business. The only other requirements are that these costs are ordinary and necessary. As the IRS states, an ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. Getting a maximum tax refund or minimizing your tax liability is about maintaining accurate records throughout the year. Using accounting software like QuickBooks will help you to keep all of your income and expenses organized.

5 AUTO 58 cents per business mile driven OR Actual auto expenses: gas, repairs and maintenance, parking, tolls, depreciation, etc., multiplied by % use for the business Personal tax return: 20 cents per medical or moving mile; 14 cents per charity mile I I VEHICLE - (purchase) new or used, multiplied by % used for the business Car, SUV, or truck (<6,000 lbs) Year 1: up to $10,000 (+ $8,000 in bonus depreciation); Year 2: up to $16,000; Year 3: up to $9,600; Year 4 and thereafter: up to $$5,760 Truck or SUV (>6,000 lbs and < 14,000 lbs) - up to $25,000 expense +100% bonus depreciation Large vehicles (e.g. construction, bus, etc. > 14,000 lbs) - All of it, up to $1,000,000 Leased vehicle: Down payment (amortize), interest, actual or mileage per Auto above TRAVEL (visiting a rental, meeting a client, vendor, partner, or attending a workshop/seminar) Airfare Auto gas or mileage Hotel or Airbnb Rental car Taxi, Uber, Lyft, bus, subway, train Parking, tips, tolls, etc.

6 MEALS (50% deductible) For yourself while traveling Dining with a current or prospective client, consultant, or vendor For employees in the office At an entertainment event Note: Under the new Tax Cuts and Jobs Act, as of 2018 entertainment is no longer deductible. MEALS (100% deductible) For employee team-building event For a marketing event or presentation Food at an open house (for realtors) TECHNOLOGY, MULTIPLIED BY % USED FOR THE BUSINESS Phone/cell phone Monthly phone bill Internet Computer Video/audio equipment Software (over the counter, not custom-created)

7 RENT AND BUSINESS USE OF HOME OFFICE (NOTE: does not apply to S-Corps) $5 per square foot of home office space (maximum of 300 sq ft, or $1,500) OR Actual home expenses, multiplied by % of home office to total home square footage Actual method expenses: mortgage interest, property taxes, utilities, maintenance, depreciation, HOA fees, insurance, etc. Office furniture and Office equipment (also see Technology section above) PROFESSIONAL FEES Legal/attorney fees State filing fees Consulting fees Accounting/tax Continued education, Business books and magazines Contractor services Real estate specific: appraisers, cost segregation study, 1031 intermediary, etc. ADVERTISING AND MARKETING Franchise, Trademark and Trade name fees Website Ad-spend, Promotional s services Flyers + postage Logo design, business cards, professional photos; gifts

8 ADMINISTRATIVE & OTHER Payroll & Employer portion of payroll taxes; Employee Benefits (retirement and health plans, cafeteria plans, dependent care assistance, life insurance, etc); Other Taxes (GET, property, etc); Insurances (liability, E&O, WC) Postage and Printing Interest and Fees on Business Credit Cards and Loans Dues & Subscriptions, Membership fees (Chamber of Commerce, trade and professional associations) Outside labor and Contractors; Charitable Contributions; Licenses and Permits; Supplies and Materials INVESTMENT PROPERTY - Operating Expenses Property taxes Mortgage interest Insurance Repairs & maintenance Landscaping Snow removal Utilities Cleaning Security Management fees Losses from casualty or theft (net of insurance reimbursements) Closing costs (some are deductible, some must be amortized over the life of the loan) Realtor commissions in connection with finding you a new tenant (NOT for helping you acquire a new property) Any administrative, marketing, or professional fees (listed above) directly attributable to a specific property

9 INVESTMENT PROPERTY - Qualified Capital Improvements and Assets Furniture & appliances used to furnish lodging De minimis improvements (NOTE: this is not a DYI write-off- talk with a professional) Assets that qualify for 100% bonus depreciation (NOTE: this is not a DYI write-off - talk with a professional) NEW in 2018: Improvements to NONRESIDENTIAL real property: Roofs Heating, ventilation, and air Fire protection Alarm and security system OTHER - Personal Return Health insurance premiums - if you don t have the option to be on an employer s or spouse s employer s plan. These are deductible on your personal tax return, form Retirement contributions - SEP IRA (up to 25% of business income, not exceeding $55,000 in 2018) or SIMPLE IRA (max $12, % of business income if self-employed). These are deductible on your personal tax return, form Contributions to HSA plan. These are deductible on your personal tax return, form 1040.

10 2) Find All Possible Business Tax Credits You could qualify for business tax credits without even knowing it. If you set up a retirement plan, made your business more accessible to the handicapped, or hired a veteran in the last year, you could save a hefty sum on taxes due to qualifying tax credits. Tax credits are used by the IRS to give businesses an incentive to complete certain objectives, like hiring disadvantaged workers or installing an energy-friendly system. Unlike a tax deduction, which reduces the amount of taxable income you claim by subtracting business expenses, tax credits directly reduce how much you owe.

11 Common Business Tax Credits for 2018 Business Tax Credit How to Qualify Credit Amount IRS Form to File Work Opportunity Credit (WOTC) If you hired a veteran, food stamp recipient or exfelon. $1,200 to $9,600 IRS Form 5884 Small Employer Pension Plan Set up a retirement plan. Up to 50% of the setup costs, not to exceed $500 per year. IRS Form 8881 Disabled Access If you removed physical barriers or installed fixtures to make your workplace more accessible. Up to 50% of your cost for the upgrades; not to exceed $10,000 per year. IRS Form 8826 Employer-Provided Childcare Facilities/Svcs If you pay a childcare facility to provide services to employees. Up to 25% of the childcare expenses, not to exceed $150k per year. IRS Form 8882 Plug-in Electric Drive Vehicle A credit for cars and trucks that draw energy from a battery and were purchased after 12/31/2009. $2,500-$7,500 IRS Form 8834

12 State of Hawaii Tax Credits Enterprise Zone: all of Molokai qualifies; look further into the Eligible Businesses list and Hiring Requirements to benefit from 100% exemption from GET, an 80% State nonrefundable income tax credit the first year (declining by 10% each year for the next six years) and Property Tax Adjustments, Zoning or Building Permit wavers or variances and Priority Permit Processing at county level. Organic Foods Production: tax credit up to $50K equal to the qualified expenses incurred to obtain organic certification from the USDA. Cesspool Credit: allows certification of more than 2 residential large capacity cesspools as eligible for the credit. State of Hawaii General Excise Tax payments for Uber/Lyft drivers: use wholesale rate of 0.5% for compensation from Transportation Network companies and retail rate of 4% only on Tips income.

13 State of Hawaii Non-Conforming Provisions SALT limitation to $10,000 per federal return; no limits on State return Personal Casualty Loss Deductions suspended, allowed only if attributable to a federally declared disaster; still deductible per Hawaii law if total exceeds $100 and 10% of AGI Moving Expenses Deduction suspended by Federal Law unless for military orders; allowed by State if new place of work adds more than 50 miles to the one-way commute 2% Floor on certain Miscellaneous items deductions suspended on federal level; not suspended by Hawaii Section 529 Plans include Qualified distributions up to $10,000 for elementary and secondary school expenses; not qualified distributions per Hawaii law 20% Pass-Through Deduction (Sec 199-A) on federal level NOT deductible on state level Bonus Depreciation of 100% expensing in the first year property is placed in service after 09/15/17 not allowed by Hawaii law Section 179 Expensing increased from $500K to $1M at federal level but remains at $25K in Hawaii Entertainment Expenses deductible up to 50% unchanged by Hawaii Estate transfer federal tax exemption increased to $11,180,000 in 2018 but remains at $5.49M on State of Hawaii return

14 Saving Money And Reducing Taxes Year-Round, Year after Year That s S.M.A.R.T! Thank You For Your Participation! Questions?