Go Your Own Way may have been a hit for Fleetwood Mac, but it’s not good advice for small businesses and startups when it comes to dealing with taxes.
Theresa Turner, a certified public accountant who operates Tax Happens LLC in Tampa Bay, describes getting the help of an accountant or attorney as a priceless investment. Consider the expense of hiring a CPA versus the cost of fines if you make incorrect deductions or claim a business expense and the Internal Revenue Service comes back three years later and assesses fines and penalties.
“The cost of a consultation with a qualitative licensed professional is minimal in comparison,” Turner says. ”
“You simply don’t know what you don’t know,” Turner added. “At a minimal, have a consultation with a CPA and or attorney to assure you are in compliance and to know when you will need their services.”
The need to get professional help only heightened in 2018 with companies now operating under the Tax Cuts and Jobs Act, the new tax plan ushered in by President Donald Trump.
According to Fundera communications manager Shira Almeleh, the new tax code sets into motion new deductions and credits that will affect each small business’s tax liability differently. And what’s most important is that those changes have already kicked in.
Turner says expect the new tax laws to have a mixed impact.
“Some taxpayers are better off, and some are worse off,” Turner says. “It depends on where you live and if you have business expenses.
“My client base here in central Florida most negativity impacted are W2 employees with out of pocket expenses their employer doesn’t reimburse them for. These are mainly sales people who incur travel and other expenses to make the sale. They can no longer deduct these expenses as a miscellaneous business expense.”
Here are six areas that need your immediate attention as tax season approaches.
Always Keep Separate Books and Records
Inaccurate record keeping can lead to inaccurate tax returns and that can lead to fines and penalties. It’s that simple.
The IRS lists the expenses you should track on its site: https://tinyurl.com/hxdntxy. These include gross receipts, purchases, expenses, travel/transportation, assets and employment taxes.
StartUp Magazine suggests using online tracking software or — stop us if you’ve heard this before — or hire a tax attorney or professional.
Turner says the most efficient way to track expenses is to run the business through a separate bank account or credit card.
“Keep all receipts,” Turner says. “You will need them if audited.”
Track Those Miles
Business miles are deductible. There are countless phone apps that can do that for you. Remember, Turner says, business miles are not just to and from clients or customers.
“Miles to meet with your CPA, insurance agent or attorney regarding business are business miles,” Turner says.
Know the Definition of a Business Expense
Business expense must be “Ordinary, Necessary & Reasonable” or the IRS will not allow the expense. Turner says it’s important to understand the type of business you operate. That’ll help define the expense.
“What qualities for one business may not qualify for another,” Turner says.
Start Up Costs are Deductible
Make sure you track money spent before you started your business. This is particularly important in regard to large equipment purchases. The change in the tax law offers an increased benefit if you buy heavy equipment, a vehicle for work.
According to Jean Murray’s blog on The Balance Small Business site, “These accelerated depreciation deduction limits have been increased as an incentive for businesses to buy.”
Don’t Make It Personal
Personal expenses are not deductible. That suit you picked up from the dry cleaner closed the sale but unless it is a “uniform” that someone wouldn’t wear outside of work it is not a business expense.
“Yes, some of us wear makeup and get our nails done for business purposes, but it’s still not deductible,” Turner says. “However, clowns can deduct the cost of their makeup and clothing.”
Dinner and A Show?
Meals with a business purpose or related to a business event are now 50 percent deductible. Eventually, you won’t be able to deduct them at all. And, as of 2018 entertainment is no longer deductible.
“Enjoy taking your clients to that hockey game but you cannot deduct that business expense,” Turner says.
Some experts say the impact of the Tax Cuts and Jobs Act won’t be fully understood for at least a couple of years. It’s critical that businesses pay close attention to not only the tax codes but how the U.S. Treasury Department frames and rules on the legislation passed by Congress.
Handling your taxes independently through an app or web site might have made sense when you worked for another company, but now, it’s not personal, it’s business. Get some professional help, and remember, Go Your Own Way was about a breakup, not about being a solo entrepreneur.