We’re two years into tax reforms made under the Tax Cut and Jobs Act of 2017, but there’s more clarity now than ever on some of the new credits available to business owners.
With the start of the new year, accounting firms are hampering now more than ever that tax planning is a year-round endeavor. Filings for 2019 have only just begun, but it’s never too early for Baton Rouge business owners to begin planning for 2020 to take full advantage of the complex federal and state tax codes.
“Tax planning is really a year-round exercise,” Postlethwaite & Netterville Tax Services director Keith Crews says.
To get ahead for 2020, Crews offers the following tax tips to small businesses for the 2020 filing year:
corporate tax structure
Gone are the days of one size fits all LLCs and S corporations. With changes to the federal tax codes, small businesses are finding new bottom-line advantages in a wide range of business structures. Moving into the new tax year, businesses may want to re-evaluate their structure and analyze how a new model could bring new benefits.
“For the first time in a long time, a structure change is beneficial in certain circumstances,” Crews says.
Take advantage of
retirement plan deductibles
The TCJA offers new deductibles for self-employed individuals on retirement plans. With all retirement plans, each choice comes with different deadlines to manage and contribution limits. Self-employed individuals with an SEP-IRA, for example, could contribute up to 20% of their earnings, or a maximum of $56,000, in 2019. Those employed by their own corporation can contribute up to 25% with the same monetary cap.
“You can get lost in the alphabet soup of what’s available to you,” Crews says. “Certainly every year we’re helping clients navigate those.”
The newly passed Secure Act (expected to be signed into law by President Trump soon) also makes it easier for small businesses to partner together to split administrative costs and offer 401(k) plans to their collective employees—and gives a tax credit to participating companies.
The new law also expands 401(k) options for part-time workers, removes the 70.5 year age cap for IRA contributions, and raises the age for IRA Required Minimum Distributions from 70.5 to 72.
Credits, credits, credits
New regulations are coming out for new and old tax credits included in the TCJA, giving more clarity on what qualifies businesses for each credit. Consult your accountant about any credits you think you may qualify for to bring down a tax bill. This includes credits for FMLA, research, new market credits and retirement plans.
A growing number of small business owners have taken advantage of a 20% tax break for pass-through corporations on qualified business income. The new deduction went into effect in 2018 with the TCJA. Since then, the IRS has reported 15 million taxpayers have claimed it.
“There’s a number of (credits) that may have been introduced by the TCJA that were technically available, but we didn’t know much about them or the guidance has been slow,” Crews says.
Take advantage of
Once again, accountants are encouraging Louisiana business owners to take advantage of the state’s opportunity zones to defer capital gains taxes for the long term.
The idea is finally starting to gain some traction, with new regulations floating around now. A lot of banks have been seizing the opportunity, but it has also gained popularity among individual investors to develop the statistical low-income, high-poverty properties.
Louisiana has 150 opportunity zone tracts as designated by federal law, 31 of them are in the Capital Region.
Replan your estate
The estate tax exemption is currently set above $11 million, up significantly from its historical level of between $1 million and $5 million.
That’s expected to sunset in 2025 with other provisions in the TCJA, however, presenting a planning opportunity for large estate owners to take steps now to minimize the tax hit.
“It’s $11 million-plus now, and we know it’s going to go down,” Crews says.
Look at your W-4
Anyone with a major life event—marriage, new child—or larger than expected previous return should adjust their W-4. A new form was just released that, while more complicated, allows filers to include more factors in their withholding calculations. January is a good time to revisit these changes, Crews says.