It’s just a matter of weeks before the March 15th and April 15 tax deadlines. Are you feeling ready to file your tax return?
If not, you’re in good company. According to a 2019 Wallet Hub survey, 50% of people would rather attend jury duty than do their taxes.
But it doesn’t have to be that way. Although you may never enjoy doing your taxes as much as we do, there are ways to make the process less intimidating.
This tip is a no-brainer, but it’s the number one way you can decrease your tax-related stress. What does getting your taxes organized look like?
- Gather all your paperwork in advance of doing your taxes. Planning to meet with your accountant in two weeks? Make a list of everything you need and put it together now…not the night before.
- Do you rely on digital documents? Regularly download receipts, invoices, and statements and organize them in a desktop file for the year. Have a plan for backing them up, too.
- Prepay your tax bill. This is especially important for sole proprietors and partners in a partnership.
- Consider hiring a bookkeeper. Even if your payroll can’t accommodate a full time bookkeeper, hiring a freelance professional can help reduce some of the workload throughout the year.
Know your deductions
Deductions are the most important tool you have in reducing your tax burden. However, rules surrounding how deductions work for businesses have changed significantly since the Tax Cuts and Jobs Act of 2017 (TCJA). Here are a few of the most important ways how taxes work differently now.
Deduction for pass-throughs and corporations
The TCJA created a deduction for taxpayers with income from pass-through businesses, which include sole proprietorships, partnerships, such as LLCs, and S Corporations. This new policy permits taxpayers to exclude up to 20 percent deduction from net business income along with all other business expense deductions.
How this impacts New Jersey & or any state that have enacted this workaround
Although the TCJA’s pass-through business deductions are implemented at the federal level, a growing number of states have passed laws at the state level to circumvent the federal requirements because of the tax burden they place in states with high state and local property taxes. New Jersey is now among these states after the Pass-Through Business Alternative Income Tax Act became effective on January 1, 2020.
This act gives businesses and owners of pass-through entities in the states where this workaround has been enacted the option of paying business taxes at the entity level and allows them to circumvent and soften the impact of business deduction restrictions put in place with the TCJA. The TCJA doesn’t restrict deductions on state taxes for entities, but it does for taxpayers who itemize their deductions.
First-year bonus depreciation
This elective tax incentive lets a business immediately deduct a large portion of the purchase price for certain assets (i.e., machinery) instead of writing them off over the course of its “useful life.” Rules for this provision only apply to assets purchased and put in service after September 27, 2017 and before January 1, 2023 when the provision expires.
There are lots of deductions that business owners can take advantage of. For a comprehensive view of what might work for your business, work with a professional accountant to discuss your tax needs. In the meantime, here are some of the most common.
It costs money to run a business. Buy a new computer? Run a paid social media campaign? These costs are all tax-deductible as a business owner, as are the costs to have a home office or to rent office space, advertising, and office supplies. Even utilities can be deducted on your taxes so don’t forget to track these costs carefully all year.
Meals and entertainment expenses
It used to be that you could deduct up to 50% of meals and entertainment for business purposes. Meals provided to employees as part of a company-wide workplace activity (i.e., holiday party) are still 100% deductible. Meals provided to clients are 50% deductible. However, entertainment isn’t deductible anymore.
Business travel expenses
When you’re a business owner, your business and travel expenses are deductible. Airfare, car rentals, and lodging qualify as well. Business travel deductions don’t have to be long-distance, either. Local travel, including regular commuting in your own vehicle, can be written off on your taxes.