New tax laws that took effect on Jan. 1 will affect travel agencies and other small businesses. But for 2017, not much has changed when it comes to maximizing your deductions and minimizing your tax liabilities. Here are some tips to help you get it all together before the taxman comes calling.
1. Forget the entertainment deduction for 2017.
Kiss that box at Yankee Stadium goodbye, unless you really are a diehard fan. The new tax bill, which took effect on Jan. 1, 2017, did away with the “E” in T&E, disallowing any deduction for entertaining potential customers. You can still write off expenses incurred in business travel, including 50 percent of meals you eat on the road – but not for tickets to events and shows.
2. Be aware of the small-business deduction for 2018.
Many small businesses qualify for a new 20 percent standard deduction that also went into effect on Jan. 1. If you earn $20,000 selling travel part-time out of your home, for example, you can automatically deduct 20 percent, or $4,000, from the earned income on which you pay taxes. Some income limitations do apply, though.
3. Maximize your deductions for the year.
If you have not made a deposit to your IRA, for example, do it before Apr. 17 so you can take the deduction. If you are aged 59.5 or more, you can take the money right back out and still claim the deduction.
4. File early.
Of course, your books are all up to date, your business expenses are entered in a spreadsheet, and you have all the receipts to back them up in a file. Figure out your taxes now, either online or by visiting your accountant, so you know whether you owe or are getting a refund. If it’s the former, you can wait until the last minute to file with the IRS; if it’s the latter, put it in the mail immediately and get your check. (Filing early also helps protect you from fraud – see #6 below.)
5. Mind the deadlines.
There are two extra days to file 2017 taxes. Forms and payments are due on Apr. 17, 2018, as are contributions for 2017 in an IRA.
6. Safeguard your data.
This is prime time for scammers, who love to access the Social Security numbers of unsuspecting folks and beat you to the punch by filing for your refund. Always use a secure server when filing taxes or sending information to an accountant. And make sure your accountant is equally careful about backing up and storing your forms.
7. When the phone rings, it’s not the IRS calling.
If you receive a call that purports to be from the IRS, just ignore it. The IRS only contacts taxpayers through the address on their tax forms.
8. If you work from home, consider taking the home-office deduction.
The simplified home-office deduction lets those who work at home write off their home office with little fuss. Where in the past you had to do some math and store receipts to back up your claim, and claiming a home-office deduction was a red flag for the IRS, now you can just claim a flat $5 per square foot used in your office, up to a maximum of $1,500. A home office must be used exclusively for work — so no, you cannot have a gym or a guest bedroom set up in there.
9. Deduct your car.
If you use your car for business you can deduct it as an expense, and choose the higher of the standard or the actual expenses. For the first, multiply the total miles driven for business by the standard mileage rate of 53.5 cents per mile plus 14 cents per mile for any miles you have driven doing charitable work. Or if you have kept a careful record, you can deduct your actual costs for gas, repair, etc., based on the percentage of the time you drove the car for work.
10. Don’t forget to deduct health insurance premiums.
One of the most frequent errors of small-business owners is not deducting their health insurance premiums. You may also be able to deduct commercial vehicle insurance and life insurance premiums. Ask your accountant or look carefully at the IRS website.
11. Understand the difference between equipment and supplies.
Equipment (also called capital expenditures) typically includes things that do not need to be replenished every year, such as office furniture and computers. You can write off the cost of new equipment (up to $1 million) in one year, or depreciate it over time. Supplies purchased throughout the year, such as pens, paper, and ink, are written off in the year they are purchased.
12. Make sure you understand the difference between an independent contractor and an employee.
Be sure to have all independent contractors who work with you complete a W9 form and send them a 1099 tax form immediately, if you have not yet done so. Refer to the SBA website to learn more).
13. Know when to call for help.
Do you understand that if you have a large income besides your freelance, odds are you do not have to pay quarterly taxes? Have you considered deferring income or accelerating deductions to cut your tax bill? Do you understand how pension planning can lower your taxes? If not, do some research, take a course or call an accountant.
Thanks to Adele Valenzuela, of AVM DeMars CPAs, LLP, in Williston Park, New York, for contributing her time and insights to help with this article.