With the completion of the failed Trump tax reform bill, the government now has one less way to cut your taxes this year. “The tax reform plan hasn’t been repealed and replaced yet, but it’s been a real surprise,” said John Murphy, national director of tax planning at Deloitte & Touche Tax. It didn’t happen fast enough to prevent legislation to restrict what many small businesses can deduct and prepare to be ready for some changes in the upcoming tax season. Here’s a list of what’s likely to change and, most importantly, how you can prepare for changes and keep your taxes down:
1. Tax changes to business types? Business structures can mean everything from sole proprietorships to corporations to partnerships to trusts to the current rules of mom-and-pop operations and larger companies, all of which can affect your tax returns and deductions. Business owners should re-evaluate their approach to filing taxes.
2. Cost of living adjustments? If there’s a negative cost of living adjustment (COLA) in your state, that means you need to make a change to your business planning, Murphy says. The failed tax reform bill left this provision unaltered. “This potentially changed future accounting and financial concepts,” Murphy said. What this means is tax planning needs to take into account your personal expenses going forward. Instead of borrowing on the debt side and leaving capital in the bank to save, now think about the financial implications of losing paychecks and employment in response to increased taxes.
3. COBRA costs? Moving your own health insurance to a private company may cut your taxes by deducting your share, and you can still make contributions to a health savings account. It may seem logical, but only know for sure if you’re still out of work, Murphy said. One check on whether your arrangement will be restored after the next fiscal year: Some bills have yet to be passed and are not yet approved by Congress.
4. Guidance on how changes to state regulations would affect your tax returns: All states issue a range of regulations related to business or personal property. How your state implements changes to those regulations can impact your tax returns. Potential requirements for business licenses, permits and licenses could impact your tax planning. Understanding the laws or how regulations might change could also help you better manage employees.
5. Changing wages: We’ve all heard the horror stories of people finding themselves paying a penalty, due to the failed tax reform bill, for not being sure how much they owe because their wages are affected by new tax laws. “You need to talk to your CPA and attorney,” said Murphy. Make sure you understand the obligations of taxpayers who do not know if they’ll owe the tax because they don’t understand the law, and how you’ll be affected by their situation.
6. Making the most of employer support: In order to meet higher federal and state taxes this year, businesses may need to improve how they manage employee benefits. “Make sure you’re taking advantage of as many employee benefits as possible,” said Murphy. If you can, make contributions to your own business’ 401(k)s, encourage staff to participate, and save on earnings. “Make sure you’re taking advantage of tax savings and calling for those to stay in place,” Murphy said. This includes employee retirement plans, such as a Roth 401(k) plan, Roth Individual Retirement Account (IRA), and other business-related plans.