Monthly Archives: March 2017

Some Tax Season Tips for Small Businesses

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.”

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.

Know The Most Small Business Owners Not Interested in Retiring

In the corporate world, many employees start counting down the days until they can ride off into retirement. Small business owners, on the other hand, would rather keep working well past retirement age, new research finds.

The latest Wells Fargo/Gallup Small Business Index revealed that if money weren’t a consideration, 53 percent of small business owners would choose to keep working in their current ventures, with 17 percent saying they would look to start a new business if money wasn’t a concern. Just 27 percent of the small business owners surveyed would immediately retire if they could.

“Many owners don’t want to retire at all, but (instead) keep working in their business in some capacity as long as they are able,” the study’s authors wrote. “These attitudes reinforce a generally upbeat small business environment today.”

Overall, small business owners are optimistic about their prospects for retirement. The research found that, if they do decide to stop working, 76 percent of small business owners believe they will have enough money to live comfortably in retirement. That’s up considerably from the 66 percent who said the same thing in 2014 and more in line with the feelings of small business owners before the start of the recession in 2007.
Small business owners are much more confident in how they will fare once they retire than most professionals. In 2016, less than half of the nonretired U.S. adults surveyed said they would have enough money to live comfortably in retirement.

“Small-business owners tend to have a more positive outlook about retirement than U.S. adults overall,” the study’s authors wrote.

When they do retire, small business owners will rely on their retirement accounts to fund their nonworking years. Specifically, 40 percent say their 401(k), IRA and other retirement accounts will be their main sources of income, while 30 percent said this will be a minor source.

Among other sources, they will rely on include Social Security, the money they get from selling their businesses, the equity they have built up in their homes, and individual stock and mutual fund investments.

Work-sponsored pension plans, money from inheritances and annuities, and insurance plans are the sources they will rely on least.

“These projected sources of income mirror what Gallup has found from the general nonretired population,” the study’s authors wrote. “However, one exception is work-sponsored pension plans, which 26 percent of all nonretirees, but only 13 percent of small-business owners, cite as a major source of retirement money.”

Most small business owners say they aren’t very worried about some of the major financial concerns many retirees face, including not being able to pay medical costs or build back retirement savings lost during the recession, not being financially prepared for unexpected life events, not being able to pay for the basic costs of living during retirement, and not being able to sell their businesses when they’re ready.

Of those concerns, medical costs was the one they were most worried about.

“But fewer than one in seven small-business owners say they are very worried about the other concerns tested, including the basic issue of not having enough money to pay cost-of-living expenses in retirement,” the study’s authors wrote.

The study was based on telephone interviews with 602 U.S. small business owners in all 50 states.