If you own a small business, you still have some time to make some tax planning moves before the end of 2018. Recent tax changes potentially allow greater depreciation deductions for property purchased and placed in service before the end of the year. In addition, the timing of deductions and receipt of income can also provide excellent tax planning opportunities. Here are some of the major tax planning opportunities to consider:
- Certain assets purchased and placed in service during calendar year 2018 qualify for 100% first-year bonus depreciation. What this means is that it may be possible to deduct the entire cost of certain asset acquisitions on your 2018 tax return. This encourages businesses to consider making asset purchases before year end. You should consult your accountant to confirm that asset purchases under consideration will qualify for the 100% bonus depreciation.\
- If your business utilizes vehicles such as SUV’s, pickup trucks and vans for more than 50% business use, you should consider purchasing those vehicles before year end. They can also be eligible for 100% bonus depreciation if they have a gross vehicle weight exceeding 6,000 pounds. You should be able to confirm with the dealer whether the vehicle actually qualifies for this weight class. But as always, review the purchase with your accountant to make sure you qualify for the deduction.
- A time tested strategy for cash basis taxpayers to defer taxable income is to accelerate deductible expenses and delay reportable income. This can be accomplished by prepaying certain expenses at the end of the year while at the same time delaying invoices to customers so that payment is not received until the following year. Delaying invoices can be problematic if it adversely impacts the cash flow of your business, and in any event, this strategy should only be employed with customers having excellent payment histories.
- If your small business does not currently have a retirement plan, you should consider establishing one. If you are self-employed and create a SEP-IRA you are allowed to contribute up to 20% of your earnings for 2018 with a maximum overall contribution of $55,000. If you are an employee of your corporation, you can contribute up to 25% of your salary, again with a maximum contribution of $55,000. Other plans include the traditional 401(k) plan which also allows generous contribution limits ($18,500 in 2018/$24,500 age 50 and over) which reduce individual taxable income and allow for tax-deferred growth.