Small business owners must comply with various federal, state and local policies in an extraordinarily complex tax system. Although tax season doesn't officially begin until next year, it is prudent to consider the existing tax structure, as well as review any upcoming changes, that apply to the Internal Revenue Service and other taxation entities.
Dr. John J. Petosa — a licensed CPA, attorney and faculty member at the Whitman School of Management at the University of Syracuse — owns a private accounting and legal practice with a focus on tax preparation at state and federal levels. When preparing for the 2017 tax season, Petosa advised business owners not to assume that "business-friendly" platforms or Affordable Care Act (ACA) changes promised by the new administration will actually become policy. Instead, they should prepare themselves to file within the existing tax structure, he said.
"If a small business falls under the requirements of the ACA, it is my suggestion that they continue to take steps to comply with the act," Petosa told Business News Daily. "It is the law of the land unless it is otherwise revisited. Failure to comply with certain parts can subject a small business to significant penalties, so compliance is in the business's best interest." [See Related Story: Small Business Taxes: What to Expect in 2017]
Preparing for tax season
Compliance starts with preparation, and small business owners should consider seeking professional advice on navigating their tax liabilities and expenses. For 2017, Petosa suggested that small business owners compare their profit-and-loss margins to the 2016 tax season to avoid underpaying on their taxes. According to the IRS, if you will owe more than $1,000 in taxes, you must make estimated tax payments in the amount of 100 percent of last year's tax liability, or 90 percent of the current year's liability — whichever is smaller.
The estimated tax payment method enables small business owners to keep track of their expenses in the buildup to tax filing in April, and offset any costs that occur between this point and their final submission to the IRS, Petosa said.
In addition, Petosa advised businesses to consider purchasing new equipment or certain other business property that will qualify for a Section 179 deduction, which allows you to deduct all or part of the cost of certain qualifying property (up to a limit) in the year you put that item into service.
"If you were waiting on that new computer system, you may wish to buy it [now] and put it in service this year [and] write it all off, which reduces your overall taxable income," Petosa said. "Often, I will suggest that my clients create a separate bank account for taxes and [put] a percentage of their receipts … in [that] account to save it so they are not short on tax day."
Small businesses should always consult a licensed CPA or other tax professional to discuss their tax liability, Petosa said. He cautioned against trying to interpret tax code language on your own without professional assistance.
"Many business owners/entrepreneurs think that they need to know and understand everything about their business, [but] most are not tax or accounting professionals, [and instead] are much better at other aspects of their business," Petosa said. "It makes sense to hire a professional to give you the advice necessary to lower your tax bills, and give you ideas or options that can help your business, while the owner can concentrate their efforts in areas that they might be more comfortable with."
Any federal or state legislation that could potentially change the tax code will take time to enact, so for the upcoming tax season, small business owners should levy their costs and expenses according to the current tax structure, Petosa said. Tax burdens vary by state and local jurisdictions in conjunction with the IRS' taxation policies, and small business owners should have a coherent plan for dealing with liabilities and expenses leading into the new year.