019 tax season is nearly upon us, and everyone knows that the only thing more fun than filing your taxes is filing taxes for your business. Congress changed fewer tax laws for 2019 than last year’s landslide, but there’s still meaningful savings out there for businesses and individuals. Read on for some of our top tips, plus download our newly updated checklists to simplify your tax filing experience.
2019 Small Business Tax Tips
Tax law changes can affect a business differently depending on how it files (e.g., sole proprietor vs. S-corp), but here a some tips to consider from both new and previous tax law:
- New types of Health Reimbursement Arrangements (HRA’s) were approved for 2020. HRA’s are a type of small business health plan (check out our small business health plans post for an overview) and they just became even more flexible by increasing the amount that can be reimbursed, expanding what costs can be covered, allowing grouping of employees, plus expanding which businesses can use them. If you haven’t considered an HRA for your business before, this can be a very attractive and helpful option.
- Deduct your own health insurance. This tax benefit has been around for a while but is still easy to miss for small business owners, especially in the beginning years. Health insurance premiums don’t translate into a deduction for most taxpayers, but small business owners usually will qualify for the ‘self-employed health insurance deduction’ -- it’s ‘above the line’, which means you don’t even have to itemize to get the benefit, so be sure not to miss.
- Clarified Qualified Business Income Deduction for rental properties. Last year there were a lot of the questions around whether rental property owners could claim the new 20% business income deduction. Well, the IRS finally defined ‘safe harbor’ criteria which can put rental property owners in the clear, plus the tax industry itself has evolved more established approaches. So if you own one or more rental properties, be sure to check out and participate in the new tax savings.
- Re-think SEP/SIMPLE IRA vs. Traditional IRA contributions. You may have a small business retirement plan set up like a SEP IRA or SIMPLE IRA, but if you’re planning to contribute less than around $12,000, you may find using your Traditional IRA instead (including your spouse’s) is a better alternative. The reason is that contributions to business retirement plans can reduce business income (normally a good thing) but under the new law it also therefore reduces the new 20% pass-through deduction (less good thing). So check the numbers and potentially save yourself some dough.
- Expanded Section 179 depreciation contains a host of benefits. A long-time favorite of business owners, changes to Section 179 depreciation can now benefit you in ways it hasn’t before: For example, HVAC replacements historically had to be depreciated over a decade or more but can now can qualify for 100% write-off when criteria are met. And if you’re upgrading your business vehicle by trading in the old, that trade-in value can now qualify 100% write-off too. These and other changes mean it’s often worthwhile to riffle through your purchases and be sure you’re maximizing this benefit.
- Re-consider disallowed entertainment costs for savings. Just because entertainment costs became non-deductible under the 2018 tax law doesn’t mean you have to throw the baby out with the bathwater — remember that if food is part of that entertainment, it most likely *does* count for a deduction, and sometimes even 100% (versus the normal 50%).
- Pre-pay next year’s expenses. It’s too late to do this for 2019, but if your business has a strong profit and cash position at the end of 2020, paying some of your 2021 operational expenses in advance will help lower your taxable income and defer the tax. It’s essentially a timing difference, but in the right scenario it can be a big help.
- Change how partner compensation works. Are you in a business taxed as a partnership? Consider changing how you withdraw money from ‘guaranteed payments’ (common in partnerships) to ‘income distributions’. These two types of payments are treated differently for tax, and the second will usually further optimize the new 20% pass-through deduction and make a huge difference.
- Capture all your mileage. Don’t underestimate the benefit of claiming business mileage driven -- if you drove 5,000 miles for your business over the course of 2019, that’s a $2,900 deduction! The easiest method is to use an app like MileIQ or AutoKept to seamlessly track in real-time, but even if you have to sit down for an hour now and look over your calendar from last year to note miles driven, it can be well worth your time.
Additional Resources for 2019 Tax Returns
One way to make sure you and your business are ready for the 2019 tax filing season is to run through a checklist. We’ve curated checklists covering both business and individual tax returns, and you can use them to simplify your tax filing experience by downloading them here or at the beginning of this article.
Along with that, don’t forget to take advantage of additional resources at your fingertips:
- Tidy up your books — Run a year-end checkup on your books to be sure your business’ numbers are ready for tax preparation: you’d be surprised at how much difference to taxes can be made through simple steps like categorizing transactions properly, reconciling your accounts, and others.
- Check your refund status — Return already filed and just waiting for the refund direct deposit or check? Keep tabs on its status using the quick links provided in our "Where’s My Refund?" blog post.
- Extend your return — Tax documents coming late or just need more time? Easily submit tax extensions following the guidance and links available in our "Filing Tax Extensions" blog post. (Remember that extensions extend the time to file the return, not pay the tax -- so be sure to include a payment with your extension if you think there’ll be a balance due, otherwise face a late-payment penalty.)
- Access IRS small business resources — The IRS has a pretty decent resource area on its website set up for just small business owners containing lots of helpful information. Check out the Small Business and Self-Employed Tax Center and even the newly released Gig Economy Tax Center for all types of tips.
- Pay or setup tax installment plans online — No need to write a check or complete paper forms, you can send tax return payments and estimated payments directly on the IRS site, and even apply for installment plans if you’re not able to float the full tax bill. (Most states have similar abilities so be sure to check out your state’s tax or revenue department for more information.)
- Get latest tax updates on our Twitter stream — Taxes are a dynamic and unfolding reality, so be sure to catch the latest updates and tips on our Twitter.
Our Philosophy: Good Tax Design is Simple
It’s our belief that a good tax design combined with simple habits can make your tax day a non-event and save you money. Our Design Team is standing by to help our Members, and if you’d like to experience an Optimized Tax too, just reach out to set up your personal Coffee Conversation.