Somehow it happens every year. Tax day seems far away—and then it's upon us. Tax day is April 17 this year. If your business is on a calendar year and you still need to file, you might want to consider the following last-minute tax deductions. Even if you've already filed, it's good to plan ahead for 2018 taxes, especially in light of tax reform.
Time might be tight right now, but don't rush through your taxes, advises Alistair Bambridge, senior partner at Bambridge Accountants.
“If you're racing to get your tax return done on time, beware [of] sacrificing accuracy for speed," he says. “Gather all of your financial records before you start. That will help you work faster and reduce the risk of overlooking something."
Often Overlooked Tax Deductions
Taking a long look at your tax records is a good practice that can help you avoid missing any money-saving tax deductions.
“Deductions are often overlooked. Business owners don't always realize that if there's an expense incurred to benefit your business and you can show it, deducting that expense is often possible," says author, speaker and wealth adviser Al Zdenek.
“For example," he continues, "if you keep dogs in your office to calm clients, you might be able to deduct costs for the dog such as food and grooming."
—Al Zdenek, author, speaker and wealth adviser
Bambridge agrees. “The lesser-known tax deductions can add up to substantial tax savings," he says. “For instance, you can reduce your tax bill by claiming the costs incurred in holding board meetings, taking educational courses and even discounts you give to customers. There are also deductions for smaller capital costs, such as staff uniforms."
Here are several additional often overlooked tax deductions.
Cost-segregation. Cost-segregation allows a business owner who owns his or her own building to speed up the depreciation of the building. The immediate savings can be dramatic, according to Anthony Parent, founding partner of Parent & Parent LLP and IRSMedic.
Research & Development. “Most businesses conduct experimental research that would qualify for the R & D business tax credit," says Parent. (He suggests asking your accountant for more details.)
Captive insurance. Essentially a form of self-insurance, captive insurance policies are used as asset protection tools, says Parent.
“When done correctly, a captive insurance policy can also be used for significant tax deductions," he says. “While captive insurance companies were once the domain of large companies, new laws and products have brought down the cost to a point where it can make sense for smaller companies, as well."
Mileage. Be certain to track all of your miles, including those to and from locations such as the post office and networking events, suggests Cindy Dillard, a tax strategist and founder of Small Business Accounting, Tax and Bookkeeping Service. She recommends using one of the many apps designed to track miles.
Reallocation of year-end payments. If there were payments made to you in late December for work in 2017, see if it's possible to place those payments into 2018.
Home office deduction. “While the IRS is sensitive to the home office deduction, because many abuse it, it's still a viable deduction for those seriously using their homes for business purposes," says Zdenek. “Recently, I had an artist whose accountant did not wish to deduct her 'studio' cost in her home, due to possibly being questioned about it. It was clearly a viable studio and she made a profit, so she took the home office deduction and came out ahead."
Even if you don't have a home office, there are still deductions you can take of at-home costs associated with work, such as internet and computer services and reference materials.
Don't let the possibility of an audit keep you from taking viable tax deductions, adds Zdenek.
“Avoid letting fear get the best of you regarding certain deductions that tend to attract audits," he says. "As long as you can prove the expense and have a reason the expense benefited your business, then the deduction is valid."
Besides the federal level, also consider your taxes on the state level.
“Since tax rules and regulations vary widely from state to state, there's no one-size-fits-all solution," says Jadon Newman, founder and CEO of retirement planning, real estate investment and asset management company Noble Capital. “Become intimately familiar with how taxes work in your state. You might find something you've been missing."
Plan for the 2018 Tax Year Now
Considering there are tax changes because of tax reform, it also makes sense to plan ahead for the 2018 tax season.
“If you only think about your taxes when tax season comes around, you're doing yourself a grave disservice," says Newman. “Right now consider what you can do to prepare for next year. This includes keeping abreast of the tax reform, because there are still a lot of unknowns. The IRS has yet to issue guidance on specific pieces of the bill."
You can help ensure that next year's tax preparation goes smoothly by meeting with your accountant as soon as possible this year so that you can set up your general ledger to record and classify expenses according to the new tax laws, advises Bill Norwalk, tax partner-in-charge at the accounting firm Sensiba San Filippo.
“Your accountant can also let you know about any exceptions," says Norwalk. “For instance, even though the deductibility of entertainment expenses has been generally eliminated with the tax reform, there are still exceptions that allow deductions. Knowing this ahead of time allows you to take advantage of such tax deductions."
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