Small Business Best Practices: Tax Planning Tips

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Best Practices Series

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• In our small business best practices series, we provide advice, tips, downloadable templates, and case studies on everything from cash flow issues to tax planning. In this piece we share tips to help small business owners make sure they are sufficiently prepared for tax season by:– Outlining the 2016 updates– Sharing the most common small business deductions– Discussing new health care requirements– Addressing guidelines for freelance employees – Providing best practice suggestions

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Tax Updates for 2016

• As a result of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Congress has modified several tax filing deadlines for small businesses which we have outlined on the next slide. View additional details about the bill here.

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New Deadlines

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• Partnership returns are due no later than March 15 for calendar year businesses, or on the 15th day of the third month following the close of the business tax year for non-calendar year entities.

• C corporation returns are due April 15 for calendar year businesses, or on the 15th day of the fourth month following the close of the business tax year for non-calendar year entities.

• S corporation tax returns remain due on March 15, or the third month following the end of the business tax year for non-calendar year companies.

• C corporation returns with a tax year ending June 30 are due September 15, through 2025. After 2025, the due date shifts to October 15.

• Extension can be made available up to sex months past the initial filing deadline for most businesses (penalties may be applied).

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*Important Note*

• Be sure to note that the IRS has also extended the audit period from three years to six years. Additional info here.

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To Deduct or Not to Deduct

• One of the most difficult questions for small businesses is whether or not an expense qualifies as a deduction. The IRS defines qualified deductions as follows:

“To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”

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Common Deductions

• Startup costs, up to established limit• Inventory expenses• Office supplies including furnishing and equipment • Mileage and travel expenses• Meals, gifts, and entertainment for clients or customers

up to established limits • Retirement plan contributions for owners and employees• Software purchases or subscriptions• Insurance premiums for owners and employees

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Healthcare Requirement Updates

• As of 2016, small businesses with 51-99 employees in the previous year are included under the expanded healthcare law and are required to provide individual heath-care coverage compliant with the Affordable Care Act.

• Small businesses also have stricter reporting requirements and must closely monitor and record employee data about:– Hours worked– Benefits offered– Number of full-time workers.

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Freelance vs. Full Time

• Many small businesses keep costs down by hiring contractors or freelance workers on a 1099 basis. In 2016, the IRS will focus more on classification of contract vs. full time workers. Small business owners must be clear on the definition of a full time vs. freelance worker as per the IRS guideline.

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Small Business Tax Tip: Iterate, iterate, iterate

• Small businesses should sit down with their tax advisor to review what went right in 2015 and where additional deductions can be applied or corrections should be made. This year, implement your tax savings strategies early and create an easy, repeatable process to making filing smoother in the future.

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