11 ways to save on business taxes for next year
Perhaps you just finished filing your 2017 business taxes, but you should already be planning for the 2018 tax season. It’s never too early to plan how you can save the maximum amount. It’s especially important considering the recent tax bill.
We offer 11 tips to help you save on business taxes in 2018.
1. Adopt payroll software, accounting software or cloud-based accounting.
Make a mistake on your payroll taxes and you could end up facing steep fines by the IRS. Payroll software is designed to make automatic calculations so you can avoid costly mistakes. Accounting software will make it easier to determine and claim deductions, and create financial statements that you can send to a CPA or other tax professional. Cloud-based accounting software makes it easier to manage your business finances all year round, but it can also make tax season easier.
2. Get and stay organized.
No matter the size of your operation, it’s important to set up an organized filing system. Whether you use accounting software, cloud-based accounting or even an old-fashioned paper trail, keep records of all expenses, deposits, and banking slips (including ATM receipts). Then make time to go over statements at regular intervals, whether it’s once a week, every other week or once a month.
3. Deduct all business auto expenses.
Make sure to keep careful records of all miles driven and deduct the mileage rate for your personal vehicle (if you use it for business purposes) as well as your company’s trucks and vans. You can also deduct vehicle expenses like gas, repairs, and insurance. If you use your own vehicle for personal and business matters, you’ll need to deduct based on the percentage it was used for each.
4. Hire independent contractors.
In the construction industry, hiring independent contractors is extremely common. While it makes good business sense, it also has many tax benefits. With full-time employees, you must pay benefits and payroll taxes. That’s not the case for independent contractors. However, it’s important that you know exactly what constitutes a full-time employee. According to the Small Business Administration, “If your contractor is discovered to meet the legal definition of an employee, you may need to pay back taxes and penalties, provide benefits, and reimburse for wages stipulated under the Fair Labor Standards Act.”
5. Take advantage of Section 179 Deductions.
If you buy new business equipment or property, you can deduct the full cost (up to $1 million for 2018). This is a change from depreciation deductions, which meant recovering costs over a period of time.
6. Set up employee retirement plans.
Setting up retirement plans for full-time employees has many advantages for your staff and for you as a business owner. Employees can make tax-free contributions and any assets that grow in the plan are also tax-free. These types of benefits can also help you attract better employees.
7. Select the appropriate business structure.
The amount you pay for business taxes has a lot to do with how your company is structured. LLCs are classified as pass-through entities, which means profits can be taxed at the ordinary rate. Shareholders of a C corp face double taxation. You pay once at the corporate rate and then again based on earnings stated on your tax return. There are advantages to both, depending on your circumstances, so make sure to talk to a CPA or attorney to know the best structure for your company.
8. Use the 10% method.
Construction companies often use something called percentage-of-completion (PCM) to account for revenue and expenses over the course of a job or a long-term contract. If you begin a project late in the year, you may be able to defer recognizing gross profits if the job is less than 10% complete.
9. Consider hiring employees who can get you tax credits.
If you need to hire employees, consider the Work Opportunity Tax Credit (WOTC). According to Construction Business Owner, “The WOTC is meant to help Americans who face significant employment barriers and incentivize the businesses willing to hire them.”
Certain groups are typically eligible for these types of credits including:
- Unemployed or disabled veterans
- Supplemental Nutrition Assistance Program (SNAP) recipients
- Temporary Assistance for Needy Families (TANF) recipients
- Supplemental Security Income (SSI) recipients
- Long-term unemployed (more than 27 weeks)
- Individuals convicted of a felony
- Residents of a Rural Renewal County or Empowerment Zone
10. Energy-Efficient Commercial Building Deduction
If you work on construction projects for government entities, you may be able to claim tax credits under Section 179D. “This incentive allows firms that have made energy-saving enhancements to the building to claim a deduction that is typically allocated to the commercial building owner,” according to Construction Business Owner.
You may be able to earn up to $1.80 per square foot for energy-saving improvements to HVAC, building envelopes, and interior lighting systems.
11. The Domestic Production Activities Deduction (DPAD)
This deduction is meant to encourage companies to manufacture their products in the United States. While it is aimed at manufacturers, you might also be able to claim it. “Construction firms can claim this deduction for the new construction or renovation of any property inside the U.S. If your firm’s employees are in the U.S. and work on residential or commercial construction, renovations or land preparation, your business is a candidate for DPAD.”
Use these 11 tips to help you save on business taxes next year. For expert financial, accounting and tax advice, look to No Boundaries CPA. Contact us today to discuss your needs.
