Prepare to take advantage of tax opportunities for business owners in 2017.
Good news for business owners, some of the uncertainty about deductions included in the PATH Act has finally been cleared. Congress passed the law back in 2015, but confusion set in regarding certain stipulations. Here’s a look at where they stand now and other options that could have a place in any business owner’s tax strategy.
Extended in the PATH Act, this tax break allows your business to deduct up to $500,000 in expenses related to qualifying equipment or software purchased or leased during 2016. This includes office furniture and vehicles.
Bonus depreciation sweetens the deal, letting business owners immediately depreciate 50% of the cost of office-related property put to use in 2016. This provision was extended through 2017 and can be used in conjunction with Section 179.
If your business was operating at a loss, bonus depreciation isn’t very useful to you right now. Luckily, you’re able to claim a higher limit on your refundable credits instead. The General Business Tax Credit is not a single separate credit, but an assortment of tax credits with specific qualifications the taxpayer must meet in order to receive. Congress can choose either to extend a credit or allow it to expire each year.
Businesses that have fewer than 25 workers, pay average annual wages below $50,000, and cover 50% or more of health premiums might qualify for the Small Business Health Care Tax Credit. This credit is available to those eligible small businesses that purchase coverage for their employees through the Small Business Health Options Program (SHOP).
The Work Opportunity Tax Credit reduces income liability for small businesses if they hire employees who fall into certain “target groups who have consistently faced significant barriers to employment,” according to the U.S. Department of Labor. There are quite a few qualifying target groups, including summer youth employees, unemployed and/or disabled veterans, ex-felons, and food stamp or Temporary Assistance for Needy Families (TANF) recipients.
Changing your ownership structure can give your business an advantage. At year’s end, owners with an LLC can still retroactively elect to be taxed as an S-corporation.
If you’ve incurred net operating losses, the Internal Revenue Service (IRS) allows for a tax deduction known as a carryback that may generate a tax benefit against previous years’ profits, up to two years. Any net operating losses leftover can then be carried forward for up to 20 years, offering a potential reduction on taxes against future earned income. The rules are complicated, and include an option to waive the carryback period, so it’s important to consult a well-qualified tax professional to get this right.
Schedule a meeting with a knowledgeable accountant and your other professional advisors who know your specific financial situation. Without their guidance, you might miss deductions you qualify for.
Sources: businessinsider.com, nwbc.gov, sba.gov, turbotax.intuit.com, investopedia.com, doleta.gov
Raymond James financial advisers do not render tax advice. Please consult a qualified professional regarding tax matters. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation.