As the calendar rolls forward into 2018, and 2017 recedes into the rear-view mirror, you're probably busy balancing a variety of personal and professional resolutions. Juggling your business, acquiring new customers, and expanding what products and services you offer will occupy lots of your time in the new year.
That said, your taxes and accounting issues will have an impact on your business as 2018 gets underway.
Making commitments and plans the for upcoming year are almost as common as the subsequent breaking of them, but resolutions for your business can have a much larger impact than simply forgetting to honor that gym membership you signed up for. Two of the most common questions I received over the holidays, and the first few days of 2018, were:
- How exactly will the recently passed tax reform bill will impact small business?
- What can entrepreneurs do to deal with these changes?
I have some good news: The tax reform bill that was signed into law at the end of 2017 should not change how you operate your business or serve your clients. The bad news is that due to the tax reform bill, you may have to balance changes to your business and individual tax returns at the same time.
Let's take a look at some accounting tips you can put to work for your business this year:
1. Make sure your payments documentation is organized.
There is certainly going to be an adjustment period for paying taxes under the new tax law. Put simply, keeping track of this information is even more important than ever before, especially with the changes to how pass through income is going to be treated.
Whether you're an independent contractor, a freelancer, or paying for work on a 1099 basis, having this information on hand will help. With the deduction or pass through entities (which might be your business) at 20 percent, this is not something you should put off analyzing.
Specifically, as per the newly passed tax reform bill, every source of qualified business income will have to calculated and accounting for independently. Headline reductions in rates are good, but the details can make all of the difference.
2. Reconcile your bank, loan, and financial accounts.
There are few things worse for an entrepreneur, either from an operational perspective or tax planning point of view, than messy paperwork. You and I both know that paperwork is usually the last thing you want to do, but reconciling these records benefits you and your business from an operational and tax perspective.
One caveat to these tax changes I am seeing overlooked is that some of the individual reforms, and you are an individual as well as an entrepreneur, are temporary in nature.
Especially with changes to estate tax thresholds, and credits for child tax credits expiring by 2025, plus medical expense deductions being treated on a retroactive basis through the end of 2018, keeping tracking your taxable income will be critically important.
3. Get your funding organized for 2018.
The vast majority of small businesses fail. Many of those failures are due to a lack of capital or a lack of financing for ongoing operations. Taxes, estimated tax payments, and knowing how to get a tax extension are important--but your business needs sources of funding and capital to continue growing, developing, and improving.
Accepting Bitcoin or other cryptocurrencies might seem like a way to get an edge, but don't forget--at least for 2017 transactions--that the IRS treats cryptocurrencies as property, not currency. You might end up owing taxes on any cryptocurrency assets you accept as payment or use to build out your business.
You could also consider options like crowdfunding or obtaining an SBA loan. Be sure to consult with your CPA or finance professional before engaging in a capital campaign for your business.
4. Get a federal and state tax ID.
With all of the changes, and tweaks that will be coming, it is arguably more important than ever before to obtain an appropriate tax ID. Every business should obtain a federal employer identification number (EIN), which enables you and your business top open bank accounts and credit card accounts.
Even with the IRS operating under significant funding cuts as tax reform is enacted, this is an area that will raise red flags when it comes time to file your individual and business taxes. With anti-fraud efforts at the IRS improving every year, not obtaining proper documentation is a stumbling block that can, and should be, avoided.
This may seem obvious, but a lot of entrepreneurs who have just started a side hustle are commingling their funds--never a good idea. Not to mention, this EIN is also necessary for paying taxes--clearly important for your business as tax issues continue to dominate headlines moving into 2018.
Image Credit: Getty Images
Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa works with small business owners and entrepreneurs to assist them with financial management and creating organized systems and procedures. She specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.
Join BMFMS on Social Media