CPA Dave Young of the New York State Society of CPAs discussed a new tax break for small business owners Monday during News 8 at Sunrise.
The term for the new tax break is Section 199A. “This is a new thing that’s in the tax code,” said Young. “Basically, if you’re a small business, you’re going to get a 20 percent deduction on the net income from your business. So it is something to keep in mind if you’re a small business and if you’re self preparing your own income tax return, remember this is brand new in 2018 and it comes into play when you’re doing your tax return right now. It’s a big deal.”
Young also offered some tried and true tax breaks and deductions that small business owners should be taking advantage of when filing their tax return. “Keep good track of your mileage,” Young said. “There’s many apps out there that keep track. Go back and make sure you look at your records, that you’ve captured your mileage. It’s something that people forget about when they’re preparing their income taxes, but it really adds up. It’s 54-1/2 cents a mile. So if you have got substantial amount of miles, it’s something that’s going to be a very good size deduction. You’ve spent the money on the wear and tear on your vehicle and gas, so might as well get the deduction.”
Make sure you’re deducting your home office. “The IRS actually made it simpler,” said Young. “They have a simplified method. Basically, you get $5 a square foot up to 300 square feet of your home office, and most people who work from their home actually qualify. It has to be exclusive use though, so keep that in mind. It can’t be the spare bedroom that the kids are also using. It has to be a seperate room just for your business.”
Young said the Minimum Wage Tax Credit offers great relief for small business owners. “So that’s really set up for small businesses that have and employ students. So if you’re having students and they’re age 16 up to 20, New York State will have a credit for you. So make sure if you are employing students, you make sure you take advantage of that credit. Nice little credit from New York State.”
The credit can go up to $1.35 an hour per student.
Another big break to take advantage of is the Section 179 deduction. “That’s the ability to write off one big piece of or multiple big pieces of equipment up to $1 million,” explained Young. “So if you’re a small buisness, you buy a computer, you buy a couple other things, rather than depreciating it, you can just take the whole deduction all at one shot. So that could pull your net income down and increase or decrease your tax liability.”
Young also offers the following advice for small business owners:
Keep good records about who is an employee and who is an independent contractor.
Organize your tax records to make sure you know where you stand right now.
Make sure you keep your personal expenses and business separate.
Keep track of places where you may have a physical presence (even unknowingly), to properly comply with state rules governing sales tax collection.
If it becomes necessary for your small business to open a foreign bank account in order to pay vendors or others in another country, make sure that you (and your tax accountant) are vigilant in following the new rules on foreign bank accounts enacted in the Foreign Account Tax Compliance Act, or FATCA.
Hiring your children is one of the easiest ways to reduce self employment income while at the same time helping your children prepare for their own future.
If your child earns $12,000 or less for the Federal, their tax rate will be 0%, so the full amount can go into a Roth account. This money can later be used to pay for college or a first home. For New York State Single (and can be claimed as a dependent on another taxpayer’s federal return) the amount is $3,100.
For more “Smart Money” advice, visit the New York State Society of CPAs website, nysscpa.org/getmoneysmart.