Congress has passed tax reform that will take effect in 2018, ushering in some of the most significant tax changes in three decades. There are a lot of changes in the new bill, which was signed into law on Dec. 22, 2017.
You can use this as a high-level overview of some of the most significant items in the new bill. Because major tax reform like this happens so seldom, it may be worthwhile for you to schedule a tax-planning consultation early in the year to ensure you reap the most tax savings possible during 2018.
Key changes for individuals:
Here are some of the key items in the tax reform bill that affect individuals:
One of the changes in the tax bill is the repeal of the Affordable Care Act (also known as “Obamacare”) individual mandate penalty. The penalty is set to zero starting in 2019 but remains in place for 2018 and prior years.
Key changes for small businesses:
Here are some of these key items in the tax reform bill that affect businesses:
This brief summary of the tax reform bill is provided for your information. Any major financial decisions or tax-planning activities in light of this new legislation should be considered with the advice of a tax professional. Call if you have questions regarding your particular situation. Feel free to share this memo with those you think may benefit from it.
As a small business owner, every team member matters a great deal and your controller is an undeniably vital member of your team. Their job of handling the business' finances is no small one and in any growing business looking to improve year by year, maintaining a financial status quo simply isn't sufficient. Part of the natural business experience is constantly facing opportunities to grow profitably and cut unprofitable practices in order to become more efficient as a company. While there are many ways to make these decisions, your controller should have some great advice ready for what is and is not valuable to your company and how to go about cutting what seems to be unnecessary. As a small business owner, ideally you will be working closely with your controller on almost all major business decisions and a reasonable number of smaller choices as well in order to make every dollar go as far as possible.
Who is My Controller?
Your controller is your business' financial manager. This could be you, your bookkeeper, or a hired professional firm that manages your company finances. Under their umbrella the books are kept, financial decisions are made, taxes are prepared, accounts are processed, then everything is documented and secured. These are all very important tasks, but that's just the dry bits. In an active business, financial management is anything but routine. Your Controller is also responsible for tracking the rise and fall of your profits and costs, item by item. They (and their department if they have one) need to know which items sell like hot cakes and which ones have seen a selling slow down, then find out why. The controller's written and personal reports to you, the owner, should include not only a confirmation of business as usual but also interesting notes on the last month's sales and advice on how to optimize gross profit next month. While the mathematical skills and precision of your controller are quite important, it's their insight thta will make the real difference.
Very Useful Financial Data
Almost every decision you make for your business is also a financial one. From breakroom furnishings to color selection of your products. You need to know which of these many decisions benefit or detract from your growth and profit, and your Controller is the person to ask. Here are a few things to check up on.
Not Getting the Full Report?
That's okay, your controller probably isn't holding back on purpose. Make sure they know that you're taking a deeper interest in the minutia of your business finances and you want the detailed report. Make sure to schedule regular meetings with your controller to discuss better financial decisions the business can make and places for improvement. Invite them to propose suggestions when they see an area that could benefit from different financial decisions and encourage them to help the company grow by applying their unique expertise.
The controller is an important member of any small business team. In order to get the best benefit from your controller, make sure they know that their insights and opinions are valued and vital to the growth of your company. Driven Insights offers professional controller services and in fact can be your entire finances department. If you don't yet have a great controller involved in your small business, contact us! We're ready to help you grow with expertly managed finances and highly detailed reports.
You may not realize it, but the R&D tax credit can deliver some breathing room in terms of tax savings. However, thousands of small businesses don't even realize how it's available to all businesses including the small ones. If you have R&D costs, you could deduct them. It has remained as part of the tax code since the 1980s, and while most considered it a "temporary" credit, it was extended 16 different times before being made into a permanent law called the PATH Act of 2015.
Why Businesses Don't Take Advantage of It
Perhaps it's the on-again and off-again uncertainty of the availability that makes this tax credit less commonly used. It has been designed to help, and whatever the cause, many people have failed to claim this credit available to small businesses. In fact, some of the members of Congress have introduced legislation aimed at educating small businesses on this subject.
Reason #1: Small Businesses Don't Know It Exists
To put it simply, a lot of businesses don't even realize this tax credit exists. Especially when you're first getting started, it can be difficult to know what to take as a deduction and what not to take. Many businesses may not have even educated themselves on taxes as much as they should have, so they miss out on this credit.
Reason #2: Available Only to Specific Industries
Many business owners fail to take advantage of it because it typically gets associated with pharmaceutical, manufacturing and technology companies. That might have been true at one time because of past regulations on the R&D tax credit. In the past, a company had to develop a process or product unique to the world to get this credit, but because regulations have been relaxed, a company might qualify for this credit if they developed any one of the following:
The business component must be grounded in the sciences for eligibility, but you can now take advantage of this credit regardless of your industry. Any company that designs newer, lighter, cheaper, stronger and a more reliable product will have eligibility for this credit because they're performing R&D activities. If you believe your business qualifies for this tax credit, you should pursue both the federal R&D tax credit and the state credit. When you receive this tax savings, it improves your cash flow and hones your competitive edge to a new level.
Reason #3: They Forget Prior Years
Sometimes even when a business takes advantage of the R&D credit, they fail to claim the past years. For example, you can go back three years to make a claim on these credits through what is called the Alternative Simplified Credit calculation. The IRS recently amended the rules of the ASC to let filers claim from their past tax returns. In the past, the IRS didn't let companies claim their credits from the years past, which explains why some people have forgotten to do this. They may not even realize they can because of the changing tax laws.
For whatever reason someone doesn't claim the R&D tax credit, they could be missing out on excellent savings. The R&D tax credit remains the largest credit available to businesses, and it provides companies with an estimated $10 billion in savings, according to Warren Everett. It's a business credit that has been designed to reward ingenuity, and those who have brought us to the frontiers of knowledge and technological advancement could qualify for one of these credits. The new amendments also meant that businesses from a full spectrum of fields can take advantage of it, which is why you want to check now more than ever.