Taxes are confusing in the best of times. But, what does the tax reform bill mean for your startup in 2018?
How is it going to affect your business, and what do you need to know in advance of filing your taxes? While you want to talk with your tax expert, you’ll find some important information here to use in your planning.
Take a look at a few things you need to know about taxes for 2018 so you can begin preparing now.
One of the biggest changes for 2018 is a significant deduction for both pass-through and corporate entities.
A pass-through business is a small business that’s structured as an S-corporation, limited liability company, sole proprietorship or a partnership. They make up about 95% of U.S. businesses and may include your startup.
For these businesses, the new tax bill provides a 20% tax deduction.
If your startup is a C-corporation, your tax rate lowers from 35% to 21%.
Another important aspect of the tax form bill is that your first-year bonus depreciation deduction moves from 50% to 100%.
This means you can deduct the full amount of your purchase on eligible equipment and property purchases instead of writing off a portion of the expense each year.
For you, this means more money up front, so you can reinvest in your business.
Net Operating Loss
You get some relief when it comes to carrying losses forward.
With regards to your net operating losses, you can’t carry these back for two years anymore. You can instead apply them for an indefinite amount of time moving forward.
When do net operating losses occur? They happen when a businesses’ tax deductions are greater than its taxable income.
This acts as tax relief, so startup owners can apply a net operating loss to future tax payments.
Knowing that you can carry a loss forward can help incentivize you to take a few more risks and spend a bit more money.
Worth noting are some small changes to some fringe benefits. When it comes to transportation fringe benefits and entertainment expenses for your employees, you can’t write these off as business expenses anymore.
Bottom line – you can still provide these for your employees, but you can no longer deduct them.
Research and Development Tax Credit
The new law didn’t take away this terrific benefit.
Did you know that if your gross annual receipts are less than five million, you can use up to a quarter million of our federal R&D tax credit toward your social security and Medicare payroll taxes each year for up to five years?
This is great news for you and helps you offset some of your labor costs.
Tips for 2018
To help you move forward with ease, consider these 2018 tax tips:
- Don’t think of your taxes as a once a year problem. They are something to think about all year long, so you ensure you are saving as much money on your taxes as possible.
- Stay abreast of tax law changes. This is where having an outsourced tax partner is helpful.
- Make a strategy for handling your taxes. Know what’s available and how you need to comply so you’re making the best decisions for your startup.
Sorting through tax information is time consuming and brain taxing, so consulting with a tax expert is often the best route for a startup. Consider hiring an outsourced company to evaluate your startup and provide you with a tax strategy moving forward.
Work with experts who are knowledgeable about local, state and federal income tax, property tax, sales tax and international tax compliance as well as the R&D tax credit that are valuable to startups.
So, while you focus on managing your business, you can leave your tax strategy to someone who knows the ins and outs of the tax law changes for 2018. Your tax expert will make sure you are maximizing all your tax breaks.
Are you a new startup ready to succeed? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your HR duties, finances, payroll and more to us. Contact Escalon today to get started.