It’s that time of year again - tax season. As businesses get their ducks in a row and talk to their tax advisors, we connected with Ralph Cetrulo, Partner at Stephano Slack, to hear what some of the most common tax questions are from small business owners. Check out this list of the five biggest tax questions, then reach out to your tax advisor for more answers.
When should I file 1099s?
If your business has made payments to contractors or other businesses during the last year, then you probably need to file 1099-MISC forms. Any contractor or business that you’ve cumulatively paid $600 or more to during the year should receive a form from you before January 31st. Your business also has to send the IRS Form 1096 before February 28.
Should I be collecting sales tax?
How about sales tax? In general, in any state where you have a physical presence, you should collect sales tax on goods and (some) services delivered to your customers.
For products, you need to get a state-issued license. For each transaction that’s taxable, the sales tax is calculated, collected from your customer, a tax record is created, and a tax return is filed to your state. For services, it varies a lot state-by-state. If sales products or services in a state with sales tax, be sure to talk to your accountant for the right course of action.
Are my partners taxed as employees?
It’s a risky proposition to treat a partner as an employee for employment tax withholding and remittance purposes. Partnerships should consult with their lawyer before deciding to treat any of their partners as employees. The consequences for partner-employee tax errors with the IRS go beyond pure employment tax liability.
Can I take business deductions for using my home or apartment?
From TurboTax (Intuit): The home office deduction lets you deduct things like mortgage interest, insurance, utilities, repairs, and depreciation for the portion of your home used for business. It's available to homeowners and renters alike. You may be able to claim the home office deduction if your office is used regularly and exclusively for your business and is your principal place of business.
Small Business Tax Incentives
Right before Christmas, Congress gave all business owners a present with some “permanency” around the tax code for tax incentives. Over most of the last few years, business owners needed to wait until December to see if certain tax provisions would be renewed. Below are a few of the most used and beneficial tax benefits to small businesses:
● Expense Election - Code section 179 which is the expense election, was expected to revert back to $25,000. It has not been $25,000 since the year 2000. The expense election is now permanent and you are able to expense up to $500,000, with a $2 million overall investment limit before phase out. Additionally, both the expense amount and the overall investment limit will index with inflation.
● Bonus Depreciation - Bonus depreciation expired going into 2015. Bonus depreciation has not been extended through 2017 where you are able expense 50% eligible property in year one. Bonus depreciation is not being phased out. In 2018, bonus depreciation will be 40% and in 2019, it will be 30%.
● Is there a Negative to Lower Gas Prices? - If you take standard mileage for your business car, the rate has declined from 57.5 cents to 54 cents per mile.
● Business Licenses - As state budgets continue to be tight, States are searching for more revenue. Since it has been hard to raise tax rates, States have been going after businesses that come into the state only from time-to-time. Insure you have your proper licenses and review your state nexus with your accountant.
A business owner needs a clear picture of their tax situation and to understand how tax situations can impact their business decisions. These businesses tend to be operated very well, tend to be more profitable, and because they’ve got their tax situation squared away (no liens, no unpaid tax issues, etc.), they’ll always be the ones who pay the least for financing.
Reach out to a Funding Navigator today for a free conversation about your business goals.
Ralph Cetrulo is a Partner at Stephano Slack and prides himself on his entrepreneurial mindset and skills, which include both expansion and exit strategies. He has been instrumental and successful in the roll up of 19 companies, helping them expand from 25 people to nearly 700 in nine years. With 25 years of public accounting experience and nine as a CFO, Ralph has a unique understanding of client concerns regarding mergers and acquisitions, business valuations, financial forecasting, and stock options planning.