Blog Post

YEAR-END TAX PLANNING FOR BUSINESSES

Byrd & Massey, Inc. • Nov 19, 2018

There are a number of end of year tax planning strategies that businesses can use to reduce their tax burden for 2018. Here are a few of them:

Deferring Income

Businesses using the cash method of accounting can defer income into 2019 by delaying end-of-year invoices, so payment is not received until 2019. Businesses using the accrual method can defer income by postponing delivery of goods or services until January 2019.

Purchase New Business Equipment

Section 179 Expensing. Business should take advantage of Section 179 expensing this year for a couple of reasons. First, is that in 2018 businesses can elect to expense (deduct immediately) the entire cost of most new equipment up to a maximum of $1 million for the first $2.5 million of property placed in service by December 31, 2018. Keep in mind that the Section 179 deduction cannot exceed net taxable business income. The deduction is phased out dollar for dollar on amounts exceeding the $2.5 million threshold and eliminated above amounts exceeding $3.5 million.


Caution: The new law removes computer or peripheral equipment from the definition of listed property. This change applies to property placed in service after December 31, 2017.

Tax reform legislation also expanded the definition of Section 179 property to allow the taxpayer to elect to include certain improvements made to nonresidential real property after the date when the property was first placed in service (see below). These changes apply to property placed in service in taxable years beginning after December 31, 2017.

1. Qualified improvement property, which means any improvement to a building's interior. However, improvements do not qualify if they are attributable to:

  • the enlargement of the building,
  • any elevator or escalator or
  • the internal structural framework of the building.

2. Roofs, HVAC, fire protection systems, alarm systems and security systems.

Bonus Depreciation. Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026.

Qualified Property

Qualified property is defined as property that you placed in service during the tax year and used predominantly (more than 50 percent) in your trade or business. Property that is placed in service and then disposed of in that same tax year does not qualify, nor does property converted to personal use in the same tax year it is acquired.

Note: Many states have not matched these amounts and, therefore, state tax may not allow for the maximum federal deduction. In this case, two sets of depreciation records will be needed to track the federal and state tax impact.

Please contact the office if you have any questions regarding qualified property.

If you plan to purchase business equipment this year, consider the timing. You might be able to increase your tax benefit if you buy equipment at the right time. Here's a simplified explanation:

Conventions. The tax rules for depreciation include "conventions" or rules for figuring out how many months of depreciation you can claim. There are three types of conventions. To select the correct convention, you must know the type of property and when you placed the property in service.

  1. The half-year convention: This convention applies to all property except residential rental property, nonresidential real property, and railroad gradings and tunnel bores (see mid-month convention below) unless the mid-quarter convention applies. All property that you begin using during the year is treated as "placed in service" (or "disposed of") at the midpoint of the year. This means that no matter when you begin using (or dispose of) the property, you treat it as if you began using it in the middle of the year.

    2. Example: You buy a $70,000 piece of machinery on December 15. If the half-year convention applies, you get one-half year of depreciation on that machine.

  2. The mid-quarter convention: The mid-quarter convention must be used if the cost of equipment placed in service during the last three months of the tax year is more than 40 percent of the total cost of all property placed in service for the entire year. If the mid-quarter convention applies, the half-year rule does not apply, and you treat all equipment placed in service during the year as if it were placed in service at the midpoint of the quarter in which you began using it.

  3. The mid-month convention: This convention applies only to residential rental property, nonresidential real property, and railroad gradings and tunnel bores. It treats all property placed in service (or disposed of) during any month as placed in service (or disposed of) on the midpoint of that month.

    4. If you're planning on buying equipment for your business, call the office and speak with a tax professional who can help you figure out the best time to buy that equipment and take full advantage of these tax rules.

Other Year-End Moves to Take Advantage Of

Small Business Health Care Tax Credit. Small business employers with 25 or fewer full-time-equivalent employees with average annual wages of $50,000 indexed for inflation (e.g., $52,400 in 2017) may qualify for a tax credit to help pay for employees' health insurance. The credit is 50 percent (35 percent for non-profits).

Business Energy Investment Tax Credits. Business energy investment tax credits are still available for eligible systems placed in service on or before December 31, 2022, and businesses that want to take advantage of these tax credits can still do so. Business energy credits include geothermal electric, large wind (expires 2020), and solar energy systems used to generate electricity, to heat or cool (or to provide hot water for use in) a structure, or to provide solar process heat. Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible; however, passive solar and solar pool-heating systems excluded are excluded. Utilities are allowed to use the credits as well.

Repair Regulations. Where possible, end of year repairs and expenses should be deducted immediately, rather than capitalized and depreciated. Small businesses lacking applicable financial statements (AFS) are able to take advantage of de minimis safe harbor by electing to deduct smaller purchases ($2,500 or less per purchase or per invoice). Businesses with applicable financial statements are able to deduct $5,000. Small business with gross receipts of $10 million or less can also take advantage of safe harbor for repairs, maintenance, and improvements to eligible buildings. Please call if you would like more information on this topic.

Qualified Business Income Deduction. Under the Tax Cuts and Jobs Act non-corporations) may be entitled to a deduction of up to 20 percent of their qualified business income (QBI) from a qualified trade or business for tax years 2018 through 2025. To take advantage of the deduction, taxable income must be under $157,500 ($315,000 for joint returns).

The QBI is complex, and tax planning strategies can directly affect the amount of deduction, i.e., increase or reduce the dollar amount. As such it is especially important to speak with a tax professional before year's end to determine the best way to maximize the deduction.

Depreciation Limitations on Luxury, Passenger Automobiles and Heavy Vehicles

The new law changed depreciation limits for luxury passenger vehicles placed in service after December 31, 2017. If the taxpayer doesn't claim bonus depreciation, the maximum allowable depreciation deduction is $10,000 for the first year.

For passenger autos eligible for the additional bonus first-year depreciation, the maximum first-year depreciation allowance remains at $8,000. It applies to new and used ("new to you") vehicles acquired and placed in service after September 27, 2017, and remains in effect for tax years through December 31, 2022. When combined with the increased depreciation allowance above, the deduction amounts to as much as $18,000.

Under tax reform, heavy vehicles including pickup trucks, vans, and SUVs whose gross vehicle weight rating (GVWR) is more than 6,000 pounds are treated as transportation equipment instead of passenger vehicles. As such, heavy vehicles (new or used) placed into service after September 27, 2017, and before January 1, 2023, qualify for a 100 percent first-year bonus depreciation deduction as well.


Note: Deductions are based on a percentage of business use; i.e., a business owner whose business use of the vehicle is 100 percent can take a larger deduction than one whose business use of a car is only 50 percent.

Retirement Plans. Self-employed individuals who have not yet done so should set up self-employed retirement plans before the end of 2018. Call today if you need help setting up a retirement plan.

Dividend Planning. Reduce accumulated corporate profits and earnings by issuing corporate dividends to shareholders.

Call a Tax Professional First

These are just a few of the year-end planning tax moves that could make a substantial difference in your tax bill for 2018. If you'd like more information, please call to schedule a consultation to discuss your specific tax and financial needs, and develop a plan that works for your business.

Best of NWA

25 Apr, 2024
We are thrilled and humbled to announce that we have been recognized as the best in our field! Thanks to the unwavering trust and support of our incredible clients, we have been awarded the prestigious Gold for Best Accounting Firm and Silver for Best Tax Services . This achievement would not have been possible without your continued faith in our expertise and dedication. We are truly honored and grateful for your partnership. Here at Byrd and Massey, we are committed to providing exceptional accounting services and top-notch tax solutions. This recognition motivates us to push even harder and strive for excellence in everything we do. Rest assured, we will continue to serve you with the utmost professionalism, integrity, and attention to detail. Your financial success remains our top priority. We extend our heartfelt gratitude to each and every one of our clients for their invaluable support. Together, we have built a strong foundation of trust and collaboration, and we look forward to many more years of working together. Once again, thank you for making us the best. We are truly honored to be your trusted accounting partner.

Arkansas Small Businesses & Franchise Tax

22 Apr, 2024
Franchise Tax in Arkansas The deadline for Arkansas Franchise Tax is May 1 st , 2024. If you haven’t already prepared, filed, and paid your tax, we can help! This service is part of our contract for bookkeeping clients; however, if you're not a bookkeeping client and would still like assistance, we can take care of it for you. Here is a breakdown of fees: Tax: $150 + $5 credit card processing fee Our Fee: $75 Don’t wait! If you would like for us to prepare and send in your Franchise Tax, we MUST have your information no later than Friday, April 26 th to allow for setup and processing. Please Note Your Franchise Tax will continue to accrue until your business has been dissolved. If you need guidance, you can set up an advisory appointment with a CPA by going here , or calling our office. Final Thoughts Remember to file a BOI (Beneficial Ownership Information) report with FinCen by going here . It is now required for both new and existing businesses under the Corporate Transparency Act.

Who Ya Gonna Call?

01 Feb, 2024
The Battle of "Us" vs. "Them" When it comes to figuring out who best to call when tax issues arise, it can sometimes seem tricky, but we’ve got you covered! We have compiled a list of situations and scenarios to help guide you through tax season and navigate the stress of dealing with the IRS all year long. Tax Return Preparation and Filing - US We will always handle ALL your tax prep and filing. We can file for all 50 states and will work with you to minimize your taxes throughout the year, not just at the end of the year. Notice or Letter from the IRS - US When you receive a letter from the IRS about your tax return, please reach out to us so we can review the notice for possible errors or even incomplete information and assist in resolving the issue as quickly as possible. Tax Disputes or Audits - US We know it can be nerve wracking to receive any notice from the IRS let alone a notice specifying you’re being audited, so that’s where we come in. We handle it all for you. Simply bring in or forward the notification to us and we’ll take care of everything from A to Z. Identity Verification – THEM If the IRS is asking to verify your identity for any reason, contact them directly using their official website or by calling their toll-free number at 1-800-829-1040. Remember, the IRS will never ask to verify personal identifiable information via call, text, message, or email. General Tax Inquiries – US For general tax questions throughout the year, we are here for you, and you can reach out to us at any time. We offer advisory services from $125 per hour where our CPAs can answer all your questions. We will guide you through any adjustments that may need to be made to your finances and contributions, simplify complicated tax laws and rules, and boost your deductions. We make it a priority to proactively stay up to date on current tax law, tax code, and new regulations so we can serve you better. To schedule an advisory, you can book online by clicking here or you can give us a call at 479-867-5599 .

QBO & The Beast

25 Jan, 2024
QuickBooks Online is cloud-based and can be accessed through any web browser or mobile app. It functions similarly to its counterpart (QuickBooks Desktop), however, offers much more flexibility making it ideal for small to medium-sized businesses. We’ve compiled a list of tips to help even the most seasoned user. Tip 1: “More” is More! You may or may not have noticed it at the bottom of your transaction screen, but next to the Print button, there’s More! It can come in handy if you need to make edits, delete, void, or even copy a transaction. Tip 2: Did You Document It? QBO is an amazing tool, so you may think it’s okay to toss or shred your documents once you enter them; however, it is always a great idea to scan and attach a copy of the original document (i.e., receipt, check, etc.) to the transaction, especially if you plan on claiming it on your tax return. There is a handy box in the transaction specifically for attachments, and you can simply upload or drag documents from the location you choose into the attachment box. Once it has finished uploading, save the transaction and voila! *Hint* You can view all your attachments by clicking the gear icon in the upper right corner and look under “Lists.” Tip 3: Use Your Tabs Sometimes it’s necessary to move back and forth between two screens simultaneously. You can do so by hovering over one of the navigation links, like Sales, and clicking your mouse wheel; doing this will automatically open a new tab. You can also right-click and select “open link in new tab.” This can be a huge help and time saver. Tip 4: Take Ctrl Ctrl is a modifier key that only works in conjunction with another key on your keyboard. In QBO there are many shortcuts you can take using the ctrl key (i.e. ctrl + another key). The two that we will share are the favorite functions Nita, our staff accountant, finds most useful: 1. [Ctrl + A] opens the Chart of Accounts 2. [Ctrl + F] helps find an entry. Bonus Tip: QuickBooks ProAdvisor Program This program connects customers with Intuit Certified local bookkeepers, accountants, and CPAs - like us - who help establish QBO accounts. This allows our clients the ability to easily track income and expenses, reconcile statements, eliminates the need to manually enter data, create short-cuts, and even better, have convenient remote access from anywhere in the world! Interested in one-on-one QBO training? You’re in luck! Call our office or click here to book a session with a certified trainer. *Please note that we will need to be able to look at your QB file before training can begin.

The Truth About End-of-Year Tax Forms

23 Jan, 2024
What's It All Mean? Confusion tends to spring up when it comes to tax time; especially while dealing with three specific tax forms: W-2’s, 1099-MISC, and 1099-NEC. Businesses are required to report payments made to employees throughout the calendar year; and these forms are how they get reported to the IRS. Let’s look at each form below: The Good Ole W-2 The Wage and Tax Statement might not be as old as sliced bread, but it has been around for a long time; since 1944 in fact. Employers must complete and send, either by mail or electronically, their employees W-2’s by January 31 to avoid being penalized. The W-2 shows the breakdown of all wages, taxes withheld, FICA, and more for that calendar year. Who Gets One? W-2’s are issued to employees who are officially employed by a company. This means that they have filled out a W-4, I-9, etc. for formal employment. The Gist About 1099-Misc The 1099-Misc Form began as a way to report earnings for independent contractors, consultants, or freelancers at the end of the calendar year. Box 7 was intended for that, specifically, but in 2020 the IRS switched things up a little. While you still use a 1099-MISC for earnings, it’s more focused on prizes and royalties rather than income. Click here for more information about what ways to use form 1099-MISC. Non-Employee Compensation (1099-NEC) Beginning in 2020, the IRS introduced a new form for businesses and organizations to report compensation. On the 1099-NEC, taxes are generally never withheld due to the nature of the work in question (i.e., contract, non-employees, consultants, etc.). You may also only receive this form if you’ve earned $600 or more during the calendar year. *Please Note: If you made less than $600 and did not receive a 1099-NEC, you are still required to report your earnings on your tax return. What If I Don’t Get All My Tax Documents? If you’re unsure if you should be receiving one, whether it’s a W-2, 1099-MISC, or 1099-NEC, reach out to the business, person, or organization who paid you; that is often the best way to resolve the issue. Be sure to verify your address and Social Security Number since those two things are reported directly to the IRS. Errors and Inaccuracies If you receive a form with errors on it, immediately tell the company and ask them to correct it. With the new program, IRIS (Information Returns Intake System) implemented by the IRS, corrections are much easier to do and can be done electronically. With tax season upon us, it’s crucial to get your documents in as soon as possible! Schedule an appointment today by clicking here or call us at 479-876-5599 . We are here to help and we’re easy to talk to!

Waivers and Penalty Relief for 2020-21 Federal Tax Returns

10 Jan, 2024
Here’s the Scoop: If you had a balance due during 2020 or 2021, the IRS announced in December 2023 that they would be automatically waiving any “failure to pay” penalties on assessed taxes that were less than $100,000. Those who filed the following ways are automatically eligible: Filed a Form 1040, 1041, 1120 series or Form 990-T tax return for years 2020 and/or 2021. Were assessed taxes of less than $100,000, and Received an initial balance due notice, typically the CP14 or CP161, between Feb 5, 2022, and Dec. 7, 2023. If you made payments on your account or your balance is paid in full, you are automatically eligible for this “failure to pay” penalty relief on assessed taxes of less than $100,000 per year. How Do I Get the Credit? According to the IRS, a credit will automatically be applied to any other tax year with a balance due. If no balance is due, a refund (by mail) will be issued. Please note - if your address has changed, you will need to update your account to make sure you receive your refund and/or any notices from the IRS. You may do so by clicking here . The IRS asks that you allow 4-6 weeks for processing. In the meantime, the IRS suggests notifying the post office that services your old address. I’m Not Eligible, What Can I Do? If you have assessed taxes of more than $100,000, you can apply for penalty relief under the reasonable cause criteria or the First-Time Abate program. Go here to view the various types of relief you may qualify for. Remember, all hope is not lost!

40/29 "On The Record" End-of-Year Tax Strategy

26 Dec, 2023
Melissa goes "On the Record" with 40/29 Yuna Lee at 40/29 News --Fort Smith & Fayetteville, Arkansas to talk about how to prepare for end-of-year taxes, and what to plan for going into 2024

Arkansas Franchise Tax & Small Businesses

05 Dec, 2023
Here's the Scoop As 2023 draws to a close, our team would like to share vital information that could greatly impact your business. The following updates will help you prepare for important deadlines and keep your business in good standing as we get ready to step into 2024. Franchise Tax Payments Deadline – December 31, 2023 If you haven’t already done so, please remember to file and pay your franchise tax for the 2023 tax year no later than December 31st. Failure to pay by the deadline will enter your business into revoked status . To check your current status, visit the Arkansas Secretary of State (SOS) website here . At Byrd and Massey, we automatically file franchise taxes for all our contract clients and extend our services to non-contract clients should you need our assistance. Please feel free to reach out to us. Due to the deadline falling on a Sunday, we ask that you contact us no later than December 21st if you need help filing. Dissolution and Franchise Tax Deadline – December 31, 2023 If you currently own a business but wish to dissolve it and avoid accruing additional franchise taxes, you must do so by December 31st. We can file Articles of Dissolution on your behalf for a nominal fee. Call us at 479-876-5599 or send an inquiry by clicking here . Accrual Reminder It's crucial to remember that even if a company is no longer in operation, the corporation will continue to accrue franchise taxes until it is formally dissolved with the Arkansas Secretary of State. Finally… Stay informed and act now to ensure compliance with Arkansas business regulations. Your timely attention to these matters will help protect your business and avoid any unnecessary penalties. As always, if you have questions let us know. After all, we are here to help and we’re easy to talk to!

Charitable Giving & Taxes

04 Dec, 2023
Making Change... When you give to charities and non-profit organizations, it not only impacts those organizations in a positive way by helping them accomplish their goals, but it can also provide a sense of personal satisfaction whether you are donating as an individual or a business. Since it can sometimes be unclear as to what qualifies and how to keep track of your giving for tax purposes, we have made a checklist of 3 important things to keep in mind when you give. · Be sure the recipient is an organization qualified under section 170(c) of the Internal Revenue Code. This includes 501(c)(3) and religious organizations. · Maintain records of your contribution(s) (receipts, bank records, letter from organization(s)) with the name of org, amount donated, and date of the contribution. · Donations to individuals or groups through crowdfunding services, such as GoFundMe, are generally considered to be "personal gifts," and monetary gifts are likely not tax deductible. If you have general questions please reach out to us at 479-876-5599. To schedule an advisory for a more in-depth look at your giving and how it might affect your taxes, click here . We are always here to help!
irs

The IRS and the Identity Protection PIN

28 Nov, 2023
The IRS and the Identity Protection PIN ID Theft is Not a Victimless Crime If you’ve been a victim of identity theft, or the IRS has identified you as a possible victim of tax-related identity theft, chances are you will receive a 6-digit PIN to authenticate your identity when you file your tax return. Here are 6 tips you need to know about your IP PIN for the upcoming tax season: Your IP PIN is ONLY valid for your federal tax return. You will receive a CP01A notice from the IRS from mid-December through early January. Please DO NOT throw it away! Keep it with all other tax-related documents you receive and bring it in to your tax preparer when you are ready to file your taxes. If you are married and you file a joint return, EACH person who has a PIN must be sure to enter it on the return. If only one of you has a PIN (i.e., only one spouse has been a victim of ID theft and has been issued an IP PIN), then only one PIN will be entered on the tax return. If you are filing for the current year AND a previous or previous years in the current year, you will use the same PIN for all tax returns during the calendar year. Dependents with their own IP PIN must share that PIN with their parent(s) or guardian(s) if they are still being claimed on a tax return. *Note: Your e-file return will be rejected If you do not enter a dependent’s IP PIN. According to the IRS, the IP PIN is only used on tax Forms 1040, 1040-NR, 1040-PR, 1040-SR, and 1040-SS. *Note: If you file an Amended return, you will need to include your IP PIN! Where Do I Sign Up? If you’ve been a victim of identity theft, the IRS has provided ways to get an IP PIN. Remember – having this PIN will prevent someone from filing a tax return using your Social Security number or Individual Taxpayer Identification Number (ITIN). Get one online. The fastest way to get an IP PIN is to use the IRS.gov websites . Get an IP PIN tool; however, if you don’t have an IRS.gov account, you will have to register and validate your identity, which can be a tedious process. Fill out and mail or fax an application for an IP PIN, which can be printed by going here . Get your IP PIN in-person by going to your local IRS Taxpayer Assistance Center. You will have to call to make an appointment, of course, and you can find an office here . Lost and Found If you lost or misplaced your PIN, not to worry, there are a couple of ways to recover your original PIN or even get a replacement! Call the IRS. They have a team that specializes in IP PIN retrieval. Once they verify your identity, they will mail your IP PIN to your address on file within 21 days. The number is 800-908-4490 and they are available to help Monday – Friday, 7:00am – 7:00pm local time. The retrieval tool online is the fastest way to receive your IP PIN. This is also the same tool that allows you to register for a PIN initially. Click here to log into the tool. Last But Not Least The IRS has created an Identity Theft Affidavit for victims of identity theft that can be found here . You can fill it out and submit online or print it and either mail or fax the form. All information for each option is at the link above. A Quick Recap Open IRS letters and keep your PIN with your other tax docs Your PIN is REQUIRED to file your tax return If you have a dependent(s), you will need their PIN to file The IP PIN is for Federal ONLY Your tax return will be REJECTED if you do not use your PIN You CAN recover your IP PIN by using one of the methods in the above post If you have any questions regarding the Identity Protection PIN, please do not hesitate to reach out to us via e-mail info@byrdandmassey.com , phone, or our website . We’re here to help any way we can! Don’t forget we are also now accepting appointments for the 2024 Tax Season. You can view our calendar online and schedule an appointment by clicking here , or by calling our office at 479-876-5599 and Jen, our friendly Receptionist, will help you find a date and time that works best for you!
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