Taxes troubling you? Help is here for small businesses
January 29, 2021
Taxes. It’s a word that can conjure up confusion for anyone, including small business owners.
The thought of deductions, depreciation and 1099s may make your head spin, but we’re here with four tips to help clear things up.
Some topics are bigger mysteries than others. New additions under the Tax Cuts and Jobs Act, only two years old, still raise questions. How entertainment and some real estate deductions are accounted for also may leave filers scratching their heads.
We asked accounting and tax professionals to share their knowledge on how to navigate some areas of the small business tax landscape for the 2021 tax year.
In addition, for more small business guidance this tax season, there are many web resources. See:
– The Small Business Administration, which maintains a page on taxes
– Intuit, which has a page of tax tips for small businesses, and
– SmallBizTrends.com, which offers a list of 25 small business deductions
Who can take the qualified business income deduction?
Phillip Jelsma, an adjunct professor in tax law at the University of San Diego, said direction on this deduction, one of the changes under the 2021 tax reform package, has become clearer. Income is a key determiner of eligibility.
“Small business owners need to remember that many of the limitations on qualified business income, such as for service businesses, don’t apply if the owner’s taxable income is less than $321,400 for married filing jointly or $160,700 for single taxpayers,” he said.
Philip Ross, a certified public accountant in the Los Angeles area, offered this caution though. He said when it comes to small businesses and real estate ownership or rental properties, there are “heavy restrictions” on taking the deduction.
“They have to be very careful of that,” said Ross, a long-time client of FE Small Business Finance.
Key Takeaway: Do some homework. Ask questions about eligibility and restrictions to understand how they apply to your business.
What has changed with the entertainment deduction?
Ross offered the reminder that while 50% of business meals are still deductible, entertainment expenses generally are not under the new law. A business owner can no longer expect a tax break from offering clients tickets to sporting events or concerts or inviting them to such events.
“I’m not certain that most people are aware of this,” he said.
Key Takeaway: Review your entertainment expenses and assess how the new law will affect your bottom line.
When to use bonus depreciation rules?
Jelsma wants small business owners to be aware of bonus depreciation rules that generally allow all new and used equipment purchases to be expensed. This option should always “be considered,” he said.
SmallBizTrends.com defines depreciation as “an allowance for the cost of buying property for your business.” Among other options are the Section 179 deduction for equipment purchases up to a particular limit – $1,020,000 in 2021, according to the site.
Where to get more support on your taxes?
Both Jelsma and Ross note that there are strong software programs available for bookkeeping and tax preparation. They both highly recommend QuickBooks not only for small business owners to keep their financials in order, but to have a set of proper records at the ready for tax time.
Both warn however, that while small business owners may rely on tax software as they prepare their personal returns, the same programs or online platforms can miss business deductions.
Users, for instance, may not fully explore the software menu options or follow the correct prompts when working on more complex business returns.
“A person can be cheating themselves,” Ross said.
If small business owners opt to seek tax help, he advises them to ask for referrals from friends and associates. A great source? Those who have established a long-term relationship with a CPA or tax professional.
Jelsma added that owners should interview at least two or three to test the fit with the adviser.
Key takeaway: Software and/or working with a professional can highlight additional savings that you may not have found on your own.
In case you missed it:
FE Small Business Finance offers several loan options for business owners who want to grow their operations and are planning for their long-term needs. Contact our loan experts about your business, and they’ll work to match you with a financing plan that best suits you. Reach us at email@example.com or (619) 243-8667.