Even though the 2020 tax season is still a few months off, there are some steps you can be taking now to ensure the process goes smoothly when it does arrive.
Businesses have a lot to manage; the ever-increasing market competition, adopting new technology, streamlining business processes, improving product quality, enhancing customer service, and a lot more. To add to the burden of every business owner, there is the stress of managing accounting and taxes.
Irrespective of the business type one owns, when it comes to tax return preparation every business owner becomes anxious due to the complexity of filing their tax returns accurately. With so many IRS guidelines to follow, it can become difficult for business owners to focus on their core activities, while at the same time filing their taxes error-free.
Here are some key tax-related statistics and info all businesses should be aware of:
- The last quarterly deadline for the 2019 tax year is January 15, 2020.
- It is imperative to pay 90% of the current year's income taxes and 100% of the previous year's tax liability to avoid IRS penalty.
- Employers have two options to pay taxes against year-end bonuses They can either withhold at a 22% rate or add a bonus to wages and withhold against full compensation.
- If your adjusted gross income in a year exceeds $150,000, the threshold goes up to 110%
- According to the IRS, the average refund of $2,864 this year was up from $2,388 the previous year.
- Under the Tax Cuts and Jobs Act, the estate tax exemption has been raised to $11.18 million, meaning the 40% tax expense can be avoided if the assets are valued at the same amount
Here are a few tips to help ensure you are fully prepared for the 2020 tax season.
Getting organized this year is the first step business owners need to take when trying to get prepared for the 2020 tax season. You must keep each of your income and expense sources in a digital or printed format to avoid any confusion or mismanagement when preparing for your taxes. You do not have to wait for the next year to start to prepare your taxes as you can do a lot of the leg work in advance. This will help maximize your chances of filing the taxes accurately.
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Determine your liability
Every business is comprised of assets and liabilities, which will differ depending on the size of your business and industry type. Taxes in the form of liability can be confusing for business owners. For example, fourth-quarter payers need to separately calculate their taxes accurately, especially if they are reaping capital gains from mutual funds with respect to the selling of underlying investments. Apart from this, year-end bonuses may come as a surprise liability that needs to be addressed carefully.
Stay compliant with tax reforms
Tax reform re-defines the way taxes must be paid. So, it is imperative to stay compliant with the latest changes in the tax regulations. The recent Tax Cuts and Jobs Act has a lot of changes for everyone, including individuals, families and business owners. There have been a lot of instances where businesses managed their taxes properly but failed to keep compliance with the IRS guidelines. This eventually resulted in getting a penalty. So, before you start preparing for your tax return, it is recommended to have a clear picture of the tax reform.
Pay an estimated tax amount
As an employee, the burden of tax payment falls on the shoulders of the employer. However, when someone becomes a business owner, the tax burden shifts dramatically. So, it is important to get prepared for the same in case you have recently started to handle the taxes of your new employees. One of the best methods which owners adopt is by making four estimated tax payments in a year, as opposed to a single one. This is done by calculating the expected elements, like adjusted gross income, credits, deductions, taxable income, among others. Mostly, owners use the previous year's records to determine an estimated amount. This is definitely a viable option to streamline the tax payment process and reduce the overall efforts and time.
If you manage your buying behavior and plan things in advance, you can save a significant amount of cash. For example, businesses can exempt themselves from certain taxes by choosing to write-off new equipment costs instead of the usual method of depreciation over several years. So, before you purchase anything expensive, it is recommended to consult your accountant to make sure you are actually making a positive impact with the purchase and not a negative one.
Track deductible expenses
Regardless of whether you are a self-employed individual, employee, or an employer, you should definitely try to track and reduce your deductible expenses. For individuals, these may refer to bills, travel expenses, and office expenses, along with other taxes related to the business. However, deductions for medical expenses that are more than 10% of adjusted gross income can be availed by anyone. Another important tax reform states businesses now can now only take 50% deductions for entertainment and meal expenses that are related to their employees and clients, compared to the 100% deductions that they could previously take. So, make sure you keep track of the same and all the other tax reform changes.
Determine pass-through status qualification
The latest tax reform has introduced some new deductions for all those who pass through a sole proprietorship If you qualify, you will be able to deduct 20% of your QBI (Qualified Business Income). It is important to note that owners of certain businesses, including athletes, doctors, lawyers, and dentists do not qualify for the pass-through deduction.
Seek professional help
The above-mentioned tips will surely help you manage and plan your taxes in advance. However, when it comes to perfection, nothing beats the expertise of professionals. The simple reason is that with years of experience and skills that improve with the passing of every day, professionals know the inside and out of accounting and know exactly how to deal with the tax challenges.
So, it is recommended to seek the help of an experienced CPA who can help you understand the tax reform better, along with your tax preparation and filing. Apart from this, if you outsource tax preparation tasks to a reputed and experienced provider, you not only get expert guidance but also are able to save money by not having to shoulder the full cost of hiring a CPA.
In the end, it is important to remember that one not only has to stay compliant with the IRS guidelines and the latest tax reform but also adopt methods that make the tax filing process effortless, streamlined and error-free. If businesses and individuals can manage it on their own, it will surely save them money. However, if they are doubtful and wish to seek expertise, then hiring a CPA or outsourcing tax preparation services is recommended. In a nutshell, it is all about preparing your taxes with perfection.