When you completed last year's small business tax return, did you run into surprises? Deductions you could no longer take? Changes in the tax code that left you regretting choices you made last year?
You may have discovered you can no longer deduct for entertaining, so hold off on buying sports tickets for clients or potential investors. And unless you made big investments in your small business last year, you may not know that the cap on what you can invest in new equipment for your business doubled.
While it's best to consult a tax professional to avoid errors and maximize your situation, here are some tips to make sure you know what's coming for your 2019 taxes - and can take advantage of changes in the tax code.
1. Mileage expenses
You can still deduct car expenses for business purposes, even if you also drive your vehicle for personal use. Keep track of the mileage you rack up specifically for business travel or errands to be accurate in your deductions. Standard mileage rates increased to 58 cents per mile for 2019.
2. Count that home office
For a home office deduction, you must use that room (or garage) for business purposes only. It must be where you conduct most of your business or meet with clients, and you have no other fixed location to conduct much of your business. You may deduct expenses for your home office including a percentage of mortgage interest, homeowners insurance, utilities, repairs and depreciation. If you rent your home and use part of it exclusively for your business, you may be able to deduct the rent paid for that part of the home. If you rent a workspace outside your home, you can deduct that rental cost as a business expense.
3. Equipment purchases
Equipment for your business costing up to a million dollars can now be deducted, as explained in Section 179 of the tax code, as opposed to the previous write-off of up to only $500,000. This includes computers, vehicles and machinery.
If you have the capital or can borrow to improve your business, this is a great time to update your technology with new servers, workstations, desktops or laptops. To consider your options, Dell Small Business advisors are available to answer your questions and offer you advice, no matter the size of your company. Engage the team in a live chat on Dell's Small Business website to find the right solution for your needs.
4. Self-employment deductions
For the independent contractor, expenses such as education fees directly related to your business or personal health insurance costs may be deductible. This may be a good time to take a course to improve your skills or knowledge. See the self-employment section of IRS.gov.
5. Qualified business income deduction (QBI)
The QBI (Section 199A) allows eligible sole proprietorships, partnerships, S corporations, plus some trusts and estates to deduct up to 20 percent of their qualified business income, plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. Section 199A of the Internal Revenue Code provides many eligible taxpayers with a deduction from a qualified trade or business operated directly or through a pass-through entity (such as an LLC). QBI is the net amount of qualified items of taxable income, gain, deduction and loss from any qualified trade or business. Items such as capital gains and losses, certain dividends and interest income are excluded. Income earned through a C corporation or by providing services as an employee is also not eligible. See the IRS website for a complete explanation of QBI.
Consult a tax professional to see if it would benefit you to register your business as an LLC or an S-Corp. Whether the financial benefit would outweigh the cost will vary, depending on your situation.
6. Employee-related expenses
You may be able to deduct expenses such as retirement plan contributions for your employees, even if you have very few. If you've considered hiring employees or increasing your staff, this may be a good time to do it. You will also be able to deduct wages paid for an employee while they are on family and medical leave. See the self-employment page at IRS.gov.
7. Beware of changes
Entertainment expenses are no longer deductible, though most business meals are allowed (see Publication 463 of the IRS). Business meals are 50 percent deductible. So plan dinner with your clients or business partners, but skip the entertainment.
No matter what type of small business you own, consult a tax professional to avoid costly mistakes and increase your tax savings. Plan ahead for next year's taxes by using the latest technology to keep accurate records of your income and expenses all year.
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