Accountants are so fun. While everyone else is at the pool and dreaming of vacations, we’re here getting excited over mid-year tax planning. Just six months left in the tax year!
If you’re not as weird as us, perhaps you haven’t started thinking about 2017 taxes yet. But now is actually the perfect time to do it. Halfway through the year, tax moves you make now can significantly change the outcome of your 2017 return. If you wait much longer, there won’t be enough time left in the year for those changes to matter much.
Here are 5 business moves you should you consider now. Tomorrow, I’ll update with the second part of this series, 5 personal moves to make.
- Come see us. Please?
Don’t make a habit of only talking to your accountant at tax time. At BGW, we constantly remind our clients that tax planning is a year-round process, and we meet regularly with them to ensure that happens. That allows us to also move into the business advisory role, too. Looking at current profits and losses, we can provide guidance on what the business owner can do to maximize profitability while minimizing taxes. Schedule a meeting with your advisor now if it’s been a few months since you’ve seen each other.
- Expand strategically.
Hopefully, 2017 is going well for you and you have some opportunities to grow. If so, know that there are several strategies that will allow you to expand while saving taxes. For example:
Buy equipment. Section 179 allows you to expense up to $500,000 of equipment purchases instead of depreciating the cost over years. This is true even if you finance the equipment.
Consider hiring from a targeted group. The Work Opportunity Credit rewards you for hiring a qualified veteran or someone from a targeted group. Employers generally earn a tax credit equal to 25% or 40% of a new employee's first-year wages, depending on the number of hours worked.
- Explore the R&D tax credit.
The R&D tax credit is one of the most underutilized tax savings strategies used in business. Chances are, you are doing something that qualifies you for the R&D credit. See our blog here for details.
A qualified small business, one with less than $5 million in gross receipts for the current year and no gross receipts for any year more than 5 years ago, can opt to use the credit as an offset to the employer’s share of Social Security taxes (up to $250,000) rather than using it against income taxes. This is a substantial benefit.
- Issue stock.
C corporations in manufacturing, technology, retail, or wholesale, may qualify to issue stock (referred to as small business stock or Section 1202 stock) that will allow their shareholders to eventually obtain tax-free treatment for any capital gain. If stock is held for more than five years, then all of the gain is tax free. Stock must be acquired in exchange for cash, property, or services, and not through a gift or inheritance. This is an effective way to bring in new investors and/or reward employees.
- Review estimated taxes.
In addition to income, estimated taxes also include self-employment tax, 0.9% Medicare tax on earned income, and 3.8% additional Medicare tax on net investment income. You have two remaining estimated tax payments this year: September 15, 2017 and January 16, 2018. Reviewing your estimated taxes now will ensure you get things right.
Don’t let summer pass you by without thinking at least a bit about your taxes. And stay tuned for tomorrow’s tips for your personal return.