Karmen Hoxie, breaks down exactly what small business owners need to know this tax season.
Q: What's the single biggest tax mistake you see small business owners make heading into filing season?
A: Treating taxes like a once-a-year chore rather than planning proactively throughout the year. The businesses that consistently minimize their tax bills are the ones keeping their books current and checking in with their CPA throughout the year. When your accounting records are up to date, you can see where you stand, understand your options, and take advantage of tax-saving strategies while they still matter. Good information leads to good decisions – and the earlier you have it, the more control you have over your tax outcome.
Q: With the passage of the OBBBA, what should business owners be doing right now to make sure they're actually minimizing their taxes?
A: This act has brought some of the most meaningful tax changes small businesses and their individual owners have seen in years. Several provisions that were set to phase out or expire have now been made permanent, and new opportunities are available for business owners looking to reduce their tax burden.
A few of the updates include the permanent allowance of 100% first year bonus depreciation, new categories of assets eligible for bonus depreciation, the permanent exclusion of up to 20% of small business income from federal taxation, and permanent extension of the paid family and medical leave credit.
With so many new provisions locked in, tax planning is more important than ever. These changes create real opportunities to reduce taxable income, strengthen cash flow, and reinvest in the business, so now is the time for owners to take time to evaluate their options and act intentionally.
Q: If a business owner had an unexpectedly profitable year, what's the first thing you tell them?
A: First of all, I’d say this is a great problem to have! With profit comes opportunity for tax planning to turn what might have been a large tax bill surprise into tax savings and the ability to do long-term planning. This is a time to implement small business retirement plans and fund them to the extent possible, providing tax savings up to tens of thousands of dollars and building up retirement funds for the future.
Investing money into the business whether in technology, equipment, or training could also produce tax deductions and help the business grow. Be aware of the potential tax bill and plan ahead by setting aside or earmarking funds so you are not caught off guard at tax time.
And review your business entity structure. Higher profits might be an indicator to compare the costs and benefits of electing S corporation taxation for your LLC. Unexpected profits, with the right planning, can become a long-term advantage rather than a short-term burden.
