It’s hard to think about taxes when the deadline is so far away but now may be the best time to get to work on them. Late December and early January tend to be slow months for small businesses, which is why they’re a great time to get a jump on work that will pop up later down the road. You know you’ll have to deal with the taxes eventually, so why not start now?
Remember, the tax period usually refers to the calendar year, which means once 2019 is done those numbers are set.
Preparing for the Work Opportunity Tax Credit (WOTC)
If you’re claiming one or more employees as part of the WOTC, then there are some extra numbers that your tax accountant needs. He or she will need the total hours worked by those employees in 2019 and the amount you paid to all employees who qualify for the tax credit.
While you’re calculating out that number, don’t forget that you can receive the credit for 12 full months of employment, so if you have an employee that you hired on July 1, 2018, you can still claim six months of work in 2019.
Calculating what you paid in taxes
Another item you’re allowed to deduct as a small business owner is the amount you paid in employment taxes. Every paycheck, you’re paying out social security taxes, Medicare, federal and state disability. These payments are tax deductible.
If you have a person in charge of payroll, they will likely get these numbers for you. However, if you’re doing it yourself, it might be a good idea to run the numbers at the end of the year so you have them ready for your accountant come tax time.
Qualified Business Income
This is one you might want to talk over with your accountant, but changes to the tax code in 2017 created the opportunity for small businesses to deduct what’s called Qualified Business Income (QBI). That means you may be able to deduct up to 20 percent of your qualified business income.
C corporations and a few other small businesses do not qualify. If you want more details on QBI, the IRS has a longer write up here.
A lot of small businesses use a vehicle, whether personal or company owned, to do work for the business. The cost of operating that vehicle is deductible. Remember, deductible means it’s a partial deduction from your taxes, not a dollar for dollar match like a tax credit. Still, every bit of savings counts.
You should have kept records throughout the year for the cost of gasoline, oil changes, etc. If not, get out the calculator and start digging through your records.
Your other option is to use the IRS standard mileage rate of 58 cents per mile in 2019. That rate covers the cost of gas, oil, and wear and tear on your vehicle. You’ll still need to go back and calculate all the miles you drove in 2019 to account for that 58 cents per mile.
This is a chart that you should have already or that your accountant has worked out. If not, you may want to work with your accountant to create one.
A depreciation schedule should include all of the assets of your business such as machinery, equipment, and vehicles, when they were purchased and a schedule of how much you can depreciate per year. You can add any new purchases from 2019 to this schedule and make sure you have a new depreciation timeline for each item.
The IRS allows small businesses to deduct the rent they pay for property used as part of their business. This works on a smaller scale if you work out of a home office. It’s a quick calculation to do, but it’s a good one to get out of the way so you’re not trying to figure it out with the tax deadline looming.
Just like rent, what you pay insurance it is also deductible. Make sure you’re tracking all the payments you make for insurances such as business, flood, fire, and vehicle.
Another calculation you can get out of the way fairly quickly is interest. The IRS will allow you to deduct interest expense as a business expense provided that money was borrowed for business activities.
Another good item to get a jump on is calculating all the money you paid out in utilities last year. Everything from electricity to phone to internet to water and sewage is deductible.
The money you pay to the pros like your lawyer and your accountant is also something you can deduct from your taxes. The IRS sees professional fees like other business operation expenses and so it tries to give you a break.
If you want to see a longer list of all the things the IRS allows you to deduct, you can check out Publication 529.
Disclaimer: These deductions and tax credits are items that almost all businesses can count on, but your specific situation may not be a typical one. That’s why talking to us here at Tax Credit Group or speaking with your personal accountant is a must. That is the only way you can be sure you’re getting the proper information for your specific situation.