10 Tax Planning & Business Tips for Privately-Held Companies
The federal, state and economic environment is in a state of constant change.
The end of 2017 was the Tax Cuts Jobs Act – the biggest federal tax change in 30 years.
Last year’s Wayfair v. South Dakota sales tax case now requires out-of-state sellers of goods and services to collect sales tax if they have no physical presence. We also saw the North American Free Trade Agreement renegotiated and new tariffs imposed on imported products.
While we always advise tax and business planning be done annually, these changes make it more crucial than ever. Here are 10 business and tax planning tips to boost your business.
Review Your Business Plan: Review it, revise it, implement the revisions and compare it to the results. And if you don’t have one, create a written comprehensive plan that incorporates your goals and objectives.
Prepare Multi-Year Budgets and Tax Projections: Meet with your tax advisor to discuss provisions in the new tax act and take steps to reduce your tax liability over a two year period. Smart planning could include timing purchases of equipment with your budget to maximize tax savings utilizing the Section 179 business expensing election and bonus depreciation. And don’t forget your state and local taxes.
Keep Abreast of New Tax Regulations: The tax act enacted in 2017 was the biggest tax law change in over 30 years, and it really included a lot of new tax provisions for small businesses such as the 20% qualified business income deduction (QBI) for owners of partnerships, S corporations and sole proprietorships. The QBI deduction was put in place to give these entities a similar benefit as the new flat 21% tax rate for C-corporations.
Innovate for the Future: Your products and services may be selling well today, but will they in 5 or 10 years? Remember the Blackberry, which was the first smartphone. I think we all know what happened to them – they didn’t innovate.
Innovation is not only important for your company’s future, but it can also help you financially through tax incentives with the Research and Development Tax Credit. It’s available not only through the IRS but many states including Pennsylvania. And the credits apply even to research projects that are not successful.
Review Your Tax Entity Structure: With the major changes to the corporate and individual rates and especially the new 20% qualified business income deduction that’s available to pass-through entities, now’s a great time to review your entity’s tax structure. For example, if you’re a single member LLC or sole proprietorship, you may want to think about making a subchapter S election to take advantage of that 20% deduction.
Evaluate Your Financial Procedures and Internal Controls: You should always be looking for ways to improve efficiencies in your accounting and finance departments. They can really make a positive impact on your billing, receivable collections and accounts payable to improve your cash flow.
Using Lean Six Sigma to evaluate your financial processes can provide significant benefits. It’s not just for manufacturers, and the process can uncover weaknesses that will prevent discrepancies, fraud and even theft.
Secure Your Data: Even if you have strong IT professionals in your organization, it’s critical to be involved and understand the safeguards for your data security. All companies should ensure their data is tested and their security measures implemented and documented. If your company is hacked, the consequences could be disastrous to your bottom line, your brand and reputation, not to mention the cost you’re going to incur to control potential damages. We highly recommend cyber insurance.
Understand Wayfair v. South Dakota: The U.S. Supreme Court last year upheld South Dakota’s tax provision requiring out of state sellers who don’t have any physical presence in the state to collect sales tax from their customers if their sales exceed $100,000, or 200 transactions.
Now, there are about 25 states including Pennsylvania that are enacting similar laws, and this decision could impact just about any business that sells its products and services out of state. The business will be required to register and collect sales tax from their customers in all those states. This will be a big burden on small business, so know the rules so you don’t assume your customers’ sales tax liability.
Make a Succession Plan: Someone once said the only reason to get into business is to get out. And every business owner wants to sell their business some day. Now’s the time to develop a succession plan because planning early will help drive the future success of your company and your personal financial success.
Waiting too long can be expensive from both a financial and non-financial perspective. We recommend working with professionals that understand succession planning and business valuation to maximize the value of your company.
Consult Experts Annually: Meet with your professional advisors every year to talk about your business plan, goals and objectives. Your advisors all want your business to be successful. If your work with advisors with experience in your industry, they’re going to have valuable insights to help your business grow and their fees will be a good investment.