Tax Deductions for Small Businesses

Filing taxes is tricky and time consuming enough, but because of the recent changes to the tax code, the 2017 Tax Cuts and Jobs Act (TCJA), there are deductions that small business owners shouldn’t overlook. Here at SD Associates, we’re always up-to-date on the latest changes on all things tax-related, so here are few tax deductions for small businesses that need to be considered during the next tax filing season.

Qualified Business Income Deduction
The Qualified Business Income deduction (also referred to QBI deduction, pass-through deduction, or section 199A deduction) is in effect for tax years 2018 through 2025.  With the QBI deduction, whether they itemize or not,  most self-employed taxpayers and small business owners can exclude up to 20% of their qualified business income from federal income tax. Self-employment taxes are excluded. Limitations are based upon taxpayer’s total taxable income. Once the taxable income reaches or exceeds $157,500 ($315,000 if filing jointly), the type of business may come into play. Calculations can get  very complicated. If you’re looking to claim this deduction or gain a better understanding, it’s best to reach out to SD Associates before the year end.

Business Vehicle Deduction
If you’re a business owner and use a vehicle, how and when you deduct for the business use those vehicles can have significant tax implications. There are many decisions such as is it better to use the standard mileage rate as your deduction or actual expenses; Who should own the vehicle? The business, the business owner or the employee; Should the business buy or lease the vehicle?   To get the most out of your business vehicle deduction, schedule an appointment with a tax expert to discuss the option right for you and your business.

Home Office Deduction
Although some small business owners are nervous to claim their home office as a tax deduction, when handled by an experienced tax professional, it can be a deduction on your next return. In order to qualify,  and you use part of your home regularly and exclusively to perform administrative or managerial activities for your business, you can claim a home office deduction. The IRS has criteria to help you determine if your space qualifies for the home office deduction. In addition, to an office in your home, garages and other types of free-standing structures may also qualify.

Retirement Plan Contributions
Far too often, small business owners think that setting up a retirement plan only results in serious tax savings if you’re a large corporation—this couldn’t be more wrong. For small businesses that have few to no employees you still have many options from defined contribution or a defined benefit plan. With the help of SD Associates, we can assist you to determine which retirement plan that works best for your business and will result in the most advantageous tax savings. 

Section 179 Deduction
Under TCJA A taxpayer may elect to expense the cost of any section 179 property (i.e. computers, equipment, machinery and vehicles) and deduct it in the year the property is placed in service. The law increased the maximum deduction to $1 million,  with certain limitations and adjusted for inflation.  The law also expands the definition of section 179 property to allow the taxpayer to elect to include the improvements made to nonresidential real property after the date when the property was first placed in service.

As a small business owner, you have enough responsibilities, so when it comes to your taxes, don’t take care of them alone—let the professionals at SD Associates take care of them for you! From planning to strategizing, we’ll help you maximize your deductions and make it easy to file your taxes. Contact us today!

Practices That Can Help Your Small Business Raise Capital

As a small business owner, you need to increase profits and maintain a healthy equity. But if you’re currently acting as your own accountant, you may be missing out on crucial ways to do this. The accountants at SD Associates are here to explain why an accountant will benefit your small business in more ways than one.

Manage Your Business’s Cash Flow

Cash flow is the lifeline for any business, but more often than not, small business owners don’t have the resources or time to effectively track cashflows properly. If you’re looking to apply for a business loan, the strength of your cash flow is one of the factors that lenders look, so you have the ability to repay a loan. Whether you need a loan to help cover your business’s working capital needs or a loan restructuring to help expand your business, our accountants will be able to assist you in tracking your cash flow and ability to provide the bank solid information when applying for that new loan.

Help Improve Your Business Credit

When you need apply for a business credit card or for a loan, having good (or great) credit is crucial for being able to access capital. But just because you’re excellent at running your small business doesn’t mean you know how to build your business credit—that’s where SD Associates comes in! Our accountants will guide you through best practices to build credit for your business, so you can get the funding you want when you need it. These practices may include:

  • Establishing a business entity separate from your personal finances.
  • Financing certain business purchases.
  • Registering with the credit bureau that is appropriate for your small business.

Assists with Borrowing Money Against Unpaid Invoices

As a small business owner, there may be times where you need cash fast or you are waiting for your clients to pay their outstanding invoices. SD Associates accountants have the financial and business acumen needed to identify these gaps for cash flow purposes. They can assist you to determine why your cash flow is negative.  If you have several clients who are not paying their invoices within the terms set forth in your policies, we can will assist you through the process of factoring these invoices. This practice enables you to borrow money against unpaid invoices so that you can quickly get the capital infusion you need to help you run your business efficiently.

Whether you are looking for an accountant to help you in the process of raising capital, or you need a bookkeeper to manage your monthly expenses and invoices, SD Associates in Elkins Park, PA can help! Contact us today to schedule an appointment with one of our financial experts.

Size Matters: Here are some Business Planning Tips for Small Businesses

Whether you are thinking of starting a business or purchasing an established one, proper business planning is a vital component for your success. From tracking your spending to analyzing your growth, establishing a budget and staying within it, to planning for your financial future, a strong business plan is the only way to achieve your short-term and long-term goals. With over 35 years in the accounting and business advisory world, the experts at SD Associates know that a business plan is not the same for a large corporation as it is for a small business—so here are four business planning tips for you and your small business!

Be Sure to Balance Your Business and Personal Goals

As a small business owner, your business and personal financial goals are closely aligned, and because of this, it is crucial for you to establish both short-term and long-term goals every year. For example, if you’re looking to expand your business into a new market or move into a larger space, these goals may impact a personal goal of saving for retirement or buying a new home. It is important to strike a balance between the two, and SD Associates can assist you with that.

Keep Costs Under Control

For any size business, the only way to avoid failure is to generate a profit, but as a small business owner, your business’ success directly affects your personal financial success. To help keep your small business successful, staying on top of all your expenditures is crucial.  This can make or break your business’ success.  Investing in a solid business advisor can pay off big in the end—not only will they assist you in tracking and analyzing your costs, they will also know to look for things such as operational deficiencies and redundancies, result-based compensation, economies of scale and ways to increase productivity.

Start with the End in Mind

Although you may be focused on having your business benefit your current financial situation, establishing a retirement plan will benefit you and your employees’ future stability. Retirement plans are a great way to save money long-term, but they can also help reduce your current taxes and increase the employees’ loyalty.  There are a number of types of retirement plans, but a few that be should considered are a 401(k), SEP IRA and SIMPLE IRA. Along with your financial advisor, SD Associates can assist you in determining the best option for you and your business.

Don’t Miss Out on Tax Opportunities

When it comes to filing and paying your taxes, it can be a stressful and complicated process, and as a small business owner, you are going to want to maximize your deductions as much as possible. To ensure you’re not missing any opportunities, be sure to start your year-end process early. Another important tip is to keep a detailed record of your expenditures, track all filing dates and remember to pay all federal, state and local taxes, payroll taxes, local permits and fees.  This is a lot of responsibility if you are doing this yourself, so it’s best to hire a small business professional.

Looking to improve—or implement for the first time—the business plan for your small business? Contact us today!

New Year, New Tax Season: Here’s Your Tax Prep To-Do List

Tax Prep To Do List

Tax documents, receipts, and updating personal information—there are a lot of tasks to check off for the tax season, but a checklist can help! Thankfully, the tax experts at SD Associates have come up with a helpful checklist to make your tax season much easier this year. 

Organize Your Tax Records
Although organizing your taxes won’t reduce your liability completely, there are some financial benefits you could experience if you get organized this month. However, with all the different tax documents, it’s hard to know which ones you need to gather and organize. Here’s a simple checklist:

  • Keep an eye out for tax documents that come in the mail, like W-2s, 1099s, mortgage interest statements, etc.
  • Gather all the receipts you accumulated over the past fiscal year and organize them by category.
  • Make sure you have the cost basis of those stock that you sold during 2018
  • Schedule out your income and related expense from those rental properties.

Once you have all the documents, make your life easier by grouping similar documents together. When it comes time to file, you’ll be glad you took this extra organizational step sooner rather than later!

Add Funds to a Retirement Account
Did you forget to contribute to your retirement account in 2018? Not to worry! You have until April 15, 2019 to do so—and if you have the funds available, you might want to make that a priority. Not only are you making smart choices for your future but contributing to an IRA or SEP account you are eligible for that tax deduction in 2018.

Make Sure Your Address is Up to Date
If you moved in 2018, it’s important to make sure you update your address with any organization that you know will be sending you tax-related documents. This includes:

  • Former employers for your W-2s
  • Banks for 1099-Int documentation
  • Brokerages for either a 1099-DIV or a 1099-B
  • Lenders for 1098 documents
  • IRS, state tax agency or clients for your 1099-MISC
  • Investments and trusts for K-1s

Name Change? Make Sure It’s Updated
When you get married, there are a lot of new and exciting things that happen, and if you became a newlywed in 2018 (congratulations!), a name change is one of them! Typically, newlyweds remember that they need to change their name on their driver’s license, passport and paychecks, but don’t always remember to notify the Social Security Administration. However, if your name doesn’t match your Social Security Record, you won’t be able to e-file your tax return, so now is the perfect time to review this.

Whether you want help filing your taxes, are looking to maximize your tax deductions or identify tax credits, SD Associates can help! Contact us today to make your upcoming tax season a breeze.

E-Commerce Business Owner PSA: Here are some Tax Considerations for your Online Business

Whether you’re starting a new e-commerce business in 2019 or hoping to handle your e-commerce taxation better for the upcoming tax season, tax considerations are unique for online businesses. While the concept of sales tax seems simple enough, the Supreme Court ruling in South Dakota v. Wayfair Inc. added complications to e-commerce companies doing business nationally. The decision enabled states to charge sales tax to out-of-state sellers, which means you don’t need a physical presence in a state to pay sales tax.

The tax experts at SD Associates are here to help! Here are some tax considerations for your online business to prepare you for the upcoming tax season, so you can stop focusing on e-commerce taxation and more on your e-commerce business.

Know Your Sales Tax Nexus

Even though your business is 100% online, you still need to determine if you have a sales tax nexus (a business connection within a state). If you do have sales tax nexus in a state, then you must pay sales tax to that state. Not sure if you have a sales tax nexus? Here’s what to consider:

  • Physical locations (i.e. offices, warehouses facilities, etc.)
  • Storage units of inventory
  • Personnel (employee, contractor, salesman, etc.)
  • Economic nexus (sale numbers or transactions performed in a state)

Get Crackin’ on Your Sales Tax Collection

Possibly the most important tax consideration for online businesses is setting up your online shopping carts with sales tax. Although every online shopping cart has the option to add sales tax, you must first determine if the state you have nexus in is a destination or origination state. If you’re located in a destination state, the sales tax rate you charge is based on your customer’s shipping address; if you’re located in an origin-based state, the sales tax rate you charge is based on your business location.

Taxable or Not Taxable, That Is the Question

You also must determine if your products are taxable. Typically, nearly all tangible items (jewelry, electronics, shoes, etc.) are taxable. Because taxable products differ from state to state, figuring out if your products are taxable largely depends on which state your business is located in.

Make Tax Season Less Painful with these Tax Deductions

As an e-commerce business owner, there’s bound to be business expenses you incur throughout the year that are deductible. Although there are specific criteria for different tax deductions, here is a list of the most common for e-commerce businesses:

  • Home office
  • Internet, cell phone, and video conferencing bills
  • Website domain and hosting costs
  • Travel expenses (gas, flights, car rentals, etc.)
  • Business insurance
  • Shipping costs
  • Office supplies (boxes, printing ink, paper, markers, tape, etc.)

If you’re not sure about which tax deductions you’re eligible for, confused by the concept of sales tax nexus or overwhelmed by filing your taxes in general, then SD Associates can help! With a variety of tax services, such as tax planning, strategy creation, maximizing tax deductions and finding eligible tax credits, the tax experts at SD Associates have everything you need. Contact us today so we can start helping you with your ecommerce business tax needs!

In preparation for the 2019 Tax Season: A couple of things to Know About the New IRS 1040 Tax Forms

Tax season will be here before you know it, but with the introduction of a new 1040 individual tax form by the Internal Revenue Service (IRS), we hope things will be a little different, for all individual filers. Because tax season is hard enough as it is without having to deal with a new tax forms, the tax experts at SD Associates have outlined everything you need to know about the new 1040 tax form, so there’ll be no surprises when April 15th rolls around.

The New Version is Supposed to Be Simpler

Looking to make things easier for taxpayers, the IRS has shortened and simplified the 1040 tax form for the 2019 tax season. To enable 150 million taxpayers to use the same form, the prior three versions of the 1040 tax forms have been consolidated into one, streamlined form. Despite this change, the IRS will still be able to obtain the information they need to determine each taxpayer’s tax liability or refund.

It’s Replacing the 1040-A and 1040-EZ

If you were confused in past tax seasons about whether you should fill out the 1040, 1040-A or 1040-EZ form, the IRS has eliminated this confusion—by eliminating the 1040-A and 1040-EZ forms altogether. Prior to this year, the 1040 was considered the standard form, the 1040-A was for relatively simple tax situations (i.e. not owning a business, no itemizing deductions and having taxable income under $100K) and the 1040-EZ was for the simplest tax situations.

It Features New Tax Tables

In addition to the change in tax forms, there will be new tax tables that you will be subject to.

Certain Tax Items Have Been Eliminated

Due to the new Tax Cuts and Jobs Act, there are a few things that will no longer appear on the 1040 form—these include: the alimony deduction, the personal exemption, moving expenses deduction and miscellaneous deductions (as noted on schedule A).

Still confused by the new 1040 tax form? Let the tax experts at SD Associates take care of your taxes for you! From tax planning to creating a strategy, maximizing tax deductions to finding eligible tax credits, the extensive tax services offered by the SD Associates team will ensure your 2019 tax season is stress-free and achieves all of your tax goals. Contact us today!

What Is the Difference Between a Grandfathered and a Grandmothered Health Plan?

Grandfathered and Grandmothered Health Plan

QUESTION: Our company sponsors a group health plan, which is grandfathered for purposes of the Affordable Care Act. We’ve been reading about grandmothered health plans. How are these plans different from grandfathered health plans?

ANSWER: “Grandfathered plans” are group health plans (or health insurance coverage) that were in existence on March 23, 2010, and have not undergone certain prohibited design changes since then. These plans are excused from some of the requirements under the Affordable Care Act (ACA), such as coverage of preventive health services without any cost-sharing and the expanded appeals process and external review, but are subject to other provisions (see our Checkpoint article). Grandfathered status can be maintained indefinitely so long as the plan or coverage has continuously covered someone (although not necessarily the same person) since March 23, 2010; no prohibited plan design changes are made; and the required disclosure and recordkeeping requirements are met. Examples of changes that would cause loss of grandfathered status include any increase (measured from March 23, 2010) in a cost-sharing percentage and elimination of all or substantially all of the benefits to diagnose or treat a particular condition. The grandfathered plan rules apply separately to each benefit package (e.g., PPO or HMO) made available under a group health plan. If grandfathered status is lost, it cannot be regained.

On the other hand, “grandmothered plans” is a term used to describe non-grandfathered health plans that are subject to an HHS transition policy allowing insurers in the individual and small group markets to renew health insurance policies they would otherwise have had to cancel due to noncompliance with certain ACA insurance market reforms (e.g., premium rating rules, guaranteed availability and renewability, and the requirement to provide essential health benefits). The transition relief for grandmothered plans has been extended several times. Under the most recent extension, states may permit insurers that have continually renewed grandmothered plans since January 1, 2014, to renew such coverage again for any policy year beginning on or before October 1, 2019 (see our Checkpoint article). (However, the insurance policies must not extend past December 31, 2019.) An insurer that renews a grandmothered plan is required to provide an annual informational notice explaining the right to retain existing coverage to affected individuals and small businesses.

For more information, see EBIA’s Health Care Reform manual at Sections VI (“Grandfathered Health Plans”) and XIV.A(“Introduction and Understanding Small and Large Group Markets”).

Contributing Editors: EBIA Staff.

 

Top Five TCJA Tax Planning Opportunities for Individuals in 2018

TCJA Tax Planning
As we enter into the tax planning stage of the year, the focus shifts to helping clients understand the impact of the Tax Cuts and Jobs Act (TCJA) and optimize their tax positions. That is no small task, given that there are over 130 new tax provisions.

Here are the top five TCJA tax planning opportunities for individuals in 2018. (Want to watch the video instead? Click here or get your TCJA Toolkit.)

#5 — Itemized deductions versus the standard deduction.

The Tax Cuts and Jobs Act roughly doubles the standard deduction. This means that for 2018, joint filers can enjoy a standard deduction of $24,000. However, the new law suspends personal exemption deductions and eliminates or limits many of the itemized deductions. For example, the state and local tax deduction is now capped at $10,000 per year, or $5,000 for a married taxpayer filing separately. Also, the Tax Cuts and Jobs Act temporarily eliminates miscellaneous itemized deductions subject to the 2% floor (like tax preparation fees and employee business expenses) and limits the home mortgage interest deduction to home acquisition debt of up to $750,000, or $375,000 for a married taxpayer filing separately.

So, what does this mean for your clients? For those who typically claim the standard deduction, chances are their tax bill will decrease for 2018. Although personal exemption deductions are no longer available, a larger standard deduction, combined with lower tax rates and an increased child tax credit, may result in less tax. Also, you may find that clients who itemized last year won’t itemize this year, or they may be able to itemize for state income tax purposes but not for federal. You will need to run the numbers to assess the impact for each client. Depending on the results, you may need to adjust your clients’ estimated quarterly tax payments or encourage them to turn in a new Form W-4 to their employers.

#4 — Revisit your qualified tuition plans.

Qualified tuition plans, also called 529 plans, are a great way to ease the financial burden of paying for college. Before the Tax Cuts and Jobs Act, earnings in a 529 plan could be withdrawn tax-free only when used for qualified higher education at colleges, universities, vocational schools, or other post-secondary schools. Thanks to the Tax Cuts and Jobs Act, 529 plans can now be used to pay for tuition at an elementary or secondary public, private, or religious school, up to $10,000 per year. If your clients are paying tuition for their children or grandchildren to attend elementary or secondary schools, encourage them to either set up or revisit their 529 plans. They’ll thank you for it later.

#3 — Watch out for home equity debt interest.

Under the Tax Cuts and Jobs Act, home equity debt interest is no longer deductible. Or so you thought. According to the IRS, interest paid on home equity loans and lines of credit is deductible if the funds were used to buy or substantially improve the home that secures the loan. In other words, it’s treated as home acquisition debt subject to the new $750,000/$375,000 limit. This is good news for homeowners, but it forces you to trace how the proceeds were used. If your client used the cash to pay off credit card or other personal debts, the interest isn’t deductible, even if the payoff occurred prior to 2018.

#2 — Bunch charitable contributions.

The new law temporarily increases the limit on cash contributions to public charities and certain private foundations from 50% to 60% of adjusted gross income. However, the doubling of the standard deduction and changes to key itemized deductions will prevent some clients from itemizing in 2018 and therefore benefiting from this increased limit. One way to combat this is to bunch or increase charitable contributions in alternating years. Suggest that clients set up donor-advised funds. This will allow them to claim a charitable tax deduction in the funding year and schedule grants over the next two years or other multiyear periods. Clients can take advantage of the deduction when they’re at a higher marginal tax rate while actual payouts from the fund can be deferred until later. It’s a win-win situation.

#1 — Maximize the qualified business income deduction.

Perhaps the hottest topic of the Tax Cuts and Jobs Act is the new qualified business income deduction under Section 199A. Individuals who own interests in a sole proprietorship, partnership, LLC, or S corporation may be able to deduct up to 20% of their qualified business income. However, the deduction is subject to various rules and limitations.

Although official guidance is lacking on this new deduction, there are some planning strategies that can be considered now. For example, clients can adjust their business’s W-2 wages to maximize the deduction. Also, it may be beneficial for clients to convert their independent contractors to employees where possible, but make sure the benefit of the deduction outweighs the increased payroll tax burden and cost of providing employee benefits. Other planning strategies include investing in short-lived depreciable assets, restructuring the business, leasing and selling property between businesses, and, yes, even getting married.

New Opportunity: Zone Tax Program

Zone Tax Program

The Opportunity Zones Program, as created in the Tax Cuts and Jobs Act of 2017, enables taxpayers to reduce and temporarily defer federal taxes on the proceeds of selling investments with unrealized capital gains, in exchange for providing equity investments in small businesses and real estate in distressed communities.

Key Provisions

  • Temporary Deferral of Capital Gains Taxes
    You will not be taxed on the gains invested in an Opportunity Fund until you exit the fund or December 31, 2026, whichever comes first. This is similar to a 1031 exchange.
  • Step Up in Basis in Years 5 & 7
    Investments held for a minimum of 5 years will be taxed at reduced rates – 90% for investments held at least 5 years (10% basis increase) and 85% for investments held at least 7 years (15% basis increase).
  • Tax-Free Earnings After Year 10
    If you hold an investment for 10 years, gains accrued on your Opportunity Fund investment during that 10-year period will not be taxed. It’s a permanent exclusion from taxable income.

How SD Associates P.C., CPA’s Can Help

Tax/Accounting Services

  • Tracking basis in the investments
  • IRS compliance with opportunity zone requirements
  • Tax preparation and planning
  • Financial statement preparation
  • Accounting system set up
  • Property valuation assistance

Other Services

  • Project forecasting and projections
  • Bank financing and loan structuring assistance
  • Entity structure review
  • Business planning

7 Smart Reasons for Your Payroll Clients to Use Time Clocks

time clocks for payrollLooking to enhance your payroll offering? There’s no better way than placing time clocks in your clients’ businesses.

Time clocks are simple to implement; in many cases they integrate with your current payroll software. They also provide an additional revenue stream for your firm, in addition to other benefits we’ll explore in this post.

Benefits of Using a Payroll Time Clock

Here are seven smart, profit-generating and time- and error-saving things you and your clients can do when you implement time clock software in their businesses.

  1. Collect employee data faster — There’s nothing more frustrating to a payroll preparer than waiting for, or chasing down, clients to get what’s needed to process payroll. Time clock applications manage employee changes and hours/time data throughout the pay period in electronic format — much easier than fielding phone calls or emails.
  2. Correct and accurate payroll calculation and reporting — Anytime your team can reduce human error, you’ll spend less time correcting or delaying payroll. Time clocks today are smart devices — they can automatically log out or deduct for meal periods for people who forget to punch in or out, — and technology like data-sharing and use of APIs eliminates double data entry. An automated time system also makes recording hours easier for remote workers, or when employees travel. Depending on the system, reports upload directly into your payroll software, reducing the need for manual entries. The payroll preparer has the benefit of documented client sign-off on the data they submit, and direct import into your payroll application. This eliminates manual data entry and payroll checks are automatically ready for your review.
  3. Re-focus your valuable time on more important business areas — In addition to the peace of mind that comes from knowing you receive approved and accurate payrolls from your clients in a decipherable format, fewer manual entries and corrections means you’ll have more time to focus on other, more valuable areas of your business. (Your client will have more time, too; the only task they’ll have is to review and submit time sheets to you.) In my experience, a manual payroll process takes about 10-15 minutes longer per client per pay period. So if you have 60 payrolls to manage, that’s 15 hours per pay period consumed keying clients’ payroll. What great things could you do for your business with those 15 hours each week?
  4. Develop additional streams of revenue for your business — With such fast and easy payroll calculations, you could easily increase the number of payroll clients without adding additional staff. That means more profits for your business.
  5. Ensure employees are accurately reporting time — With a time clock system, you can set up security parameters to make sure the employee is the one reporting their own hours — and that they’re reporting them accurately. You also have the ability to monitor time in and out, meals, breaks and more. Remember, wages that are overpaid or underpaid can result in liabilities that put your business clients at risk for fraud, with the statute of limitations up to three years.
  6. Comply with Affordable Care Act (ACA) regulations and labor laws — ACA requirements have changed in the last few years — and it’s imperative to comply in order to avoid a penalty. A time clock will help you track the number of employees you have and the hours worked, so you’ll know if your clients are reaching the threshold of offering health insurance. You can also track and monitor time to make sure your clients are in compliance with standard labor laws, especially if they employ a minor.
  7. Track time and projects to streamline workflows — Your clients can monitor how many hours are worked, as well as the employee pay rate to make sure they’re on budget with their payroll costs. Your clients can see time off entered by employees and monitor, approve or deny a request. The client also has the ability to create and assign a client task or project to an employee, to know where their time is being spent. And it’s helpful for employees, too. They can request time off, and see the details of a project including what tasks need to be completed.

As you can see, a time clock system will not only save your firm and your clients time and money, it will help reduce input errors and even give your clients’ employees peace of mind that they’re being paid for their time accurately.