How Small Businessses Can Use New Tax Law To Their Advantage

As small business leaders consider more efficient tax-prep process, 2018 will be even more complicated because of the new tax act that was introduced by the government.
What is important is that the new act is generally viewed as a win for small businesses.
According to Kevin Miller, CMO of Neat even in a flat year profit wise, most small businesses will be incurring significantly lower tax liability as compared to 2017, leaving enterprises open to various financial opportunities.
Adds Miller, small businesses may want to use some of the additional capital they saved on taxes to hire more employees, but a new aspect of the tax act called the Qualified Business Income Deduction will make them take a closer look as to if new employees should be W-2’s or 1099’s.
The difference between a W-2 and 1099 employee is that W-2’s payroll taxes are automatically deducted from their paycheck and paid to the government through the employer, while a 1099 is an independent contractor who is responsible for calculating and remitting their tax liabilities.
The Qualified Business Income Deduction, which applies to pass-through entities like sole proprietorships, S-corporations and partnerships, affects new employees because it is limited to the lesser of:
• 20% of qualified business income, or
• 50% of the total W-2 wages paid by the business
This means a small business that adds or employs mostly independent contractors would have a small W-2 limitation and in-turn, a small Qualified Business Income Deduction. There are additional factors, like benefits and overtime, but it is certainly something a small business owner should consider and may want to discuss with their accountant.
The new tax act also features a change to meals and entertainment expenses. Under the previous act, client entertainment was deductible by 50%, so a small business owner could expect the government to chip-in when they wanted to treat their best customers, but under the new act, the employer should expect to pay entirely for that quarterly round of golf.
Deductions as they pertain to internal team meals are also different under the new act. The government will no longer pay 50% of internal staff meals, like weekday lunches or after work happy hours, unless the business is traveling. If traveling, staff meals are then deductible by 100%.
While small businesses try and get a better understanding of the new tax act, it is vitally important that they set up a system that lets them efficiently collect and record business receipts and documents because meals and entertainment are not the only things deductible. Despite the changes in the new act, general deductions available to small businesses include:
• Professional Fees (Accountants, Lawyers, Business Consultants)
• Advertising and marketing (Business Cards, Google Listings, Social Media Ads)
• Repairs and Maintenance (Computer or Copier Repairs)
• Education (Industry Events or Seminars)
• Software (Accounting Apps or Website Software)
With so many possible deductibles, small businesses will want to make sure they are collecting expense receipts year-round and today’s modern technology makes it easier than ever. With modern tools, small business owners can simply snap a photo of their expense receipts and upload the information to popular accounting software, like QuickBooks.
This also allows owners and managers to share their important documents with accountants and bookkeepers, avoiding a shoebox full of crumbled receipts, which will ultimately lead to a stress-free tax season that maximizes earnings.