This document is not intended to be construed as tax or legal advice. You should always contact your tax or legal advisor for specific tax planning recommendations for your situation.

It’s September, which in my world means it’s time to be thinking about tax planning for 2018. You know there have been tax law changes, so it’s time to see 1) where you stand for 2018, and 2) how to reduce that tax liability before December 31st. After that date your options are severely limited.

So, take these ideas, understand if they might apply to you, implement them yourself, or take them to your CPA now to save some money. Whatever works for you…just take some action to save some money.

Rethink Entity Choice
Most small businesses are set-up as an S corporation or an LLC (a pass-through entity). With the recent tax law changes, C corporations (taxable corporations) are now taxed at 21%. This rate can oftentimes be less than your personal income tax rate, so does it make sense to convert your entity structure to a taxable C corporation?

Unfortunately the answer is not simple and there are a lot of factors to consider in making a decision such as this, but it’s worth looking at to see if it could benefit you.

Acquire Assets
This is one of those tried and true tax reduction ideas that has been around for years now. Section 179 now allows businesses to expense up to $1 million in business assets purchased, and bonus depreciation now allows you to write-off up to 100% of the purchase price of new and used assets.

If you need assets in your business, it may be time to take advantage of these provisions, BUT, only if you need the assets. Many times business owners go out and buy assets just to write them off and save taxes. This is silly…don’t do this. Take advantage of these provisions if you need the assets in your business, but don’t go and waste money on things you don’t need.

Reimburse Business Mileage
Many business owners who have their vehicle in their personal name instead of the business name opt to write-off business mileage on their personal tax return every year. This option is no longer available starting in 2018.

So, if you are in this situation, be sure to reimburse yourself for business mileage from your business before the end of the year to take a deduction for this business mileage.

New 20% Pass-Through Deduction
By now you’ve heard of this, and it will help out a lot of people. Unfortunately if you are a “specified service trade or business” (SSTB) you are excluded from this new favorable deduction. An SSTB includes any business that provides the following services:

• Health (services by physicians, nurses, dentists, veterinarians, etc)
• Law
• Accounting
• Actuarial science
• Performing arts
• Consulting
• Athletics, and
• Financials services

But here’s the deal – if you are in one of these fields, you can still get the deduction if your taxable income on your personal tax return is below certain thresholds. For example, if you are married filing jointly, the deduction phases out when your taxable income is between $315,000 and $415,000.

Be sure to examine where you will end up for 2018, and be sure to “manage” your taxable income through various means (retirement plan contributions, acquiring assets, IRA contributions, etc), and if you are able to reduce your taxable income below these levels, you may be able to take advantage of this new deduction.

Reconsider Employing a Child
Many business owners employ their children as a way to shelter income, but it has to be money paid for legitimate work. Under the new law, the standard deduction for a single individual is now $12,000 and personal exemptions are going away, so it could make much more sense now to employ a child in your business and shelter up to $12,000.

However, like everything in taxes, you have to see if it makes sense in your business. This is because to take advantage of this, you cannot claim them as a dependent, which means you would lose the increased child tax credit. Also, by paying them a W-2 wage, if you are an S corporation, you still have to pay employment taxes.

The point is this – take a look at it and see if it makes sense.

These tax planning ideas should get you started on planning for 2018. The bottom line is if you do nothing, you will save nothing. By being proactive now, you can end up saving a lot of money. Contact us and we can look at your situation and see what makes sense, or take these to your tax advisor to get started NOW.