2017 Year-End Business Planning Checklist
It's that time of year again and we're gearing up for the upcoming tax season. While many of you are likely busy preparing for the Thanksgiving holiday, there's still time before the close of the 2017 calendar year to perform some business and tax related planning. As you may be aware, both the House and Senate have released their versions of ‘The Tax Cuts and Jobs Act’. This is the first major overall to the Tax Code since 1986. There are similarities and differences between the two plans. No one knows, with any certainty, what the final regulations will look like. At this stage in the game, it’s highly unlikely that any of these proposals will be retroactive to 2017.
If and when ‘The Tax Cuts and Jobs Act’ becomes enacted, it’s probable that tax rates for individuals and businesses will be lower than the rates currently in effect. Both the House and Senate plans propose eliminating the graduated tax rates for C-Corporations and replacing them with a flat 20% tax rate. The proposals regarding the taxation of business pass-through earnings for S-Corporation shareholders, LLC members and sole proprietors are far more complex. Additionally, there are major differences between the House and Senate plans for these business types which will need to be worked out.
In the absence of a crystal ball, the most concrete tax planning strategy we can recommend is as follows. If your business is a cash basis filer, where possible consider deferring income to 2018 by delaying invoicing to customers. Cash basis taxpayers should also consider accelerating expenditures to 2017 rather than deferring to next year. Of course, these strategies should only be utilized if they also make sense from a business perspective. However, if tax rates decrease in 2018 as proposed, these strategies could result in real and permanent tax savings.
Summarized below are some additional items to consider before year-end.
• Section 179 Expensing - The Section 179 deduction annual limit remains unchanged at $500,000 for both federal and MA tax purposes. Section 179 allows taxpayers to expense certain tangible personal property in the year placed in service rather than depreciating over the asset's useful life. Additionally, a business can elect to treat up to $250,000 of qualified real property, which includes qualified leasehold improvements, qualified restaurant property and qualified retail improvement property, as Section 179 property thereby allowing for immediate expensing as well.
• Asset Capitalization Regulations – The IRS de minimis safe harbor limit remains unchanged at $2,500 for 2017. Generally speaking, all privately owned companies without audited financial statements can expense asset purchases less than or equal to $2,500 rather than capitalizing and depreciating. Please review your company's asset purchases for 2017 and make sure that only amounts greater than $2,500, on a per item basis, are capitalized and those less than or equal to $2,500 are expensed.
• Research Tax Credit - This popular federal tax credit was made permanent by the PATH Act of 2015. In addition to making the research credit permanent, the PATH Act also provides for two additional options for certain companies to utilize the credit. 'Eligible small businesses' may now use the credit to offset Alternative Minimum Tax (AMT). Additionally, certain startup companies that meet the 'qualified small business' definition may use the credit to offset up to $250K of employer payroll taxes. Generally the federal research tax credit is calculated as 20% of qualified research and experimental expenditures. Many states including MA and CA also offer a research tax credit. If your company is involved in research activities and we haven't previously claimed this credit, please contact Jennifer to discuss in more detail to determine whether your business might qualify for this credit.
• Affordable Care Act (ACA) – The Executive Order 'Minimizing the Economic Burden of the Patient Protection and Affordable Care Acting Pending Repeal’ issued in January 2017 by President Trump does NOT change the law. The legislative provisions of the ACA are still in force until changed by Congress and taxpayers remain required to follow the law and pay what they may owe. For businesses, this means the employer shared responsibility rules and the requirement to report health insurance information is still in effect for applicable large employers (‘ALE’). An ALE is any employer with 50 or more full-time equivalent employees.
If an ALE does NOT offer affordable health coverage that provides a minimum level of coverage to its full-time employees, the company may be subject to an employer shared responsibility penalty if at least one of the ALE's full-time employees receives a premium tax credit for purchasing individual health coverage through a Health Insurance Marketplace. Each ALE is subject to the Form 1095-C - Employer-Provided Health Insurance Offer and Coverage reporting. If you think your company has 50 or more full-time equivalent employees, you should be working with an ACA consultant to ensure compliance. If you need assistance in this area or further information regarding this complex law, please contact us.
• W-2 Reporting - As a business owner, certain items must be included in your W-2 as other compensation not subject to Social Security or Medicare taxes. If your business is an S-Corporation, the cost of employer paid health and dental insurance premiums must be included in the W-2s of all > 2% S-Corp shareholder/employees. The personal use of a company owned automobile is a taxable fringe benefit, for both C- and S-Corporations, that must be included in an employee's W-2 as well. It's expensive to correct W-2s, so check with your payroll service provider to find out their reporting deadline (many are mid-December). If you have specific questions regarding what items may need to be included in your company's W-2s or need assistance with the taxable personal use of company automobile calculation, please contact us. Also note that the W-2/W-3 filing deadline for both the IRS and MA DOR is January 31st.
• Form 1099-MISC Reporting - Do you have all of the necessary information in your accounting system to complete Forms 1099-MISC? These forms must be issued to all individuals or unincorporated entities (such as LLCs) your business pays $600 or more for services during a calendar year. Additionally, a 1099-MISC must be issued when a company pays $600 or more for rent or legal services, regardless of the payee's tax classification. Note, however, that payments made with a credit or debit card are NOT subject to reporting on Form 1099-MISC as such payments are reported by the payment settlement entity on Form 1099-K. For all vendors that meet these criteria, make sure the vendor profile is complete with name, address and SSN/EIN. If not, gather this information before year end by requesting the vendor to complete a Form W-9 - Request for Taxpayer Identification Number and Certification. Sechrest & Bloom is available to prepare 1099-MISC forms on your behalf but will need all information no later than January 15th. The Form 1099-MISC filing deadline is January 31st for recipients, the IRS and the MA DOR. The penalties for late/non-filing of Forms 1099-MISC are SIGNIFICANT. If a 1099 is filed within 30 days of the due date, the fine is $100/Form 1099, if filed by August 1st, the fine is $200/Form 1099, if filed after August 1st or not filed at all, the fine is $520/Form 1099. These fines assume both the recipient and IRS copies are filed late.
• Review your company's YTD financial statements - Is your bookkeeping and accounting up to date? Do the results make sense in relation to the prior year and your current business environment? Have transactions been recorded to the proper accounts? Need help with this process? Sechrest & Bloom is available to assist you as needed. If we typically perform bookkeeping services for your company and you have not already provided us with the necessary documents through September 30th, please contact Kathy or Trish as soon as possible to schedule. We are only able to provide proactive recommendations if the accounting records for your business are current.
• Check the YTD Net Income on your P&L - Where do you stand for the year? If you have a larger than expected profit, consider making a major purchase that can be expensed this year with the Section 179 deduction. If your business is a cash basis tax filer, consider the timing of year end expenses. Keep in mind that an expense is deductible at the time charged to a corporate credit card, even for cash basis filers.
• Year-end Bonuses & Retirement Plan Contributions - Year-end bonuses are a great way to reward employees for a job well done. Please remember that such amounts must be included in an employee's W-2 so be sure to carefully report the information to your payroll service provider. Retirement plan contributions (profit sharing, pension, SEP, employer 401(K) and SIMPLE plan matching contributions) are a great way to save for retirement on a tax deferred basis and can also be an effective tool for managing your company's taxable income. Did you know that retirement plan contributions (excluding employee deferrals) do not need to be funded until your tax return is filed or due, even for a cash basis filer? The SEP contribution limit for 2017 is $55,000. If you'd like Sechrest & Bloom's assistance in calculating a year-end bonus and associated federal and state withholdings for an S-Corporation shareholder, please contact Jennifer soon to coordinate.
• Inventory - If your company has inventory, take a physical inventory count as close to year end as possible and make any necessary adjustments for book to physical count differences in your accounting system before year end.
• Website - Check all of the links on your company website and be sure they are active. Also, review your website content and update as appropriate.
• Goal setting - Write out goals and objectives for 2018.
• For your reference, the table below summarizes some important figures for 2017 and 2018.
|Limitation||2017||2018 (changes in bold)|
|Social Security wage base||$127,200||$128,500|
|401(K) elective deferral||$18,000||$18,500|
|401(K) catch-up deferral >= 50 years old||$6,000||$6,000|
|SIMPLE plan elective deferral||$12,500||$12,500|
|SIMPLE plan catch-up deferral >= 50 years old||$3,000||$3,000|
|Defined benefit plan contribution||$215,000||$220,000|
|Business mileage reimbursement rate||$.535/mile||not yet released|
Call us for help if you need more information or guidance on completing the steps above.
Year-end tax packages will be emailed in mid-December. Please be on the lookout and review prior to year-end. A little advanced planning could save your company money by reducing your tax liability and/or tax preparation costs.
We wish you an enjoyable Thanksgiving holiday spent with family and friends!
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