Now that we are nearing the mid-year mark, it is a good time to review how your business has done thus far and project where it is going for the remainder of the year. Many people believe that tax planning is something that happens in December, but successful tax planning is an on-going process that requires the business owner and their tax advisors to communicate and evaluate the business and the owner’s personal tax situation on a continuous basis.
When reviewing your year-to-date numbers, consider the following:
- Have your 2017 Adjusting Journal Entries been recorded?
- Are your bank accounts reconciled on a monthly basis?
- Have you reviewed your Accounts Receivable for collection issues?
- Are Accounts Payable accurate and bills being paid timely?
3) Prepare a cash flow forecast for the remainder of the year based on management expectations. This will help you and your tax advisor to make better-informed decisions. Forecasts can help highlight potential cash problems in the future. It may be time to consider obtaining a line-of-credit to assist in a temporary cash flow issue or cash inflows may be slow, and it is time to put a larger focus on collections, or changing terms.
With the passing of the Tax Cuts and Jobs Act of 2017, there are a number of changes that must be considered when planning for the future. Below is a list of some tax planning strategies to consider for 2018:
1) Review your entity structure. Entity tax rates have changed dramatically, and your current tax structure may not be the most tax advantageous. There is no one right answer for all businesses. Now is the time to review your options with your tax advisor.
2) Review how you classify meals and entertainment on your books. Entertainment expenses are no longer deductible and should be recorded in a separate account from meals. Employer provided-meals are no longer 100% deductible. For 2018, they are 50% deductible. Definitive guidance on business meals has not yet been issued. We suggest tracking these separately and will follow up with additional information later in the year.
3) If you do not have a profit sharing/401(k) plan, now would be the time to consider setting up one. There are a many different plans with various contribution requirements and administrative costs. This is an excellent tax planning tool that can be a business deduction and build your retirement savings at the same time.
4) Corporate owners should review salary and tax withholdings based upon the new tax laws. You may want to consider lowering your salary or adjusting your tax withholdings depending on your particular tax situation.
5) Purchase of new equipment/vehicles. With the passing of the Tax Cuts and Jobs Act, the Section 179 deduction has increased from $500,000 in 2017 to $1,000,000 in 2018. Additionally, 100% bonus deduction is available and now includes used equipment. Depreciation on luxury vehicles and SUVS have increased dramatically as well.
It is important to start tax planning as early as possible, and in order to do that your books and records should be as up-to-date and accurate as possible. Tax strategies vary based upon your particular business and individual tax situations – one size does not fit all. As tax advisors, we want to hear about how your business is doing throughout the year – the more information we have, and the sooner we know it, the better we can advise you.