Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with Barbara Weltman. Barbara Weltman, an attorney and author of J.K. Lasser’s Small Business Taxes 2017, publishes Idea of the Day® and Big Ideas for Small Business® at www.barbaraweltman.com, and hosts a radio show. Follow Barbara on Twitter @barbaraweltman.
SmallBizLady: THE YEAR IS OVER, BUT IS THERE ANYTHING I CAN STILL DO TO LOWER MY 2016 TAXES?
BarbaraW: You can set up and fund a SEP until the extended due date of your return. The contribution limit for 2016: 20% of self-employed; 25% of employee compensation; maximum contribution is $53,000. You must cover employees on a nondiscriminatory basis.
SmallBizLady: IS TAKING A HOME OFFICE DEDUCTION AN AUDIT RED FLAG?
BarbaraW: There’s a lingering belief about this, but no statistics or other info to back up. If you meet home office deduction requirements, you can write off your actual costs or use an IRS-set simplified amount ($5 per sq. ft. up to 300 ft.).
SmallBizLady: WHAT’S THE BEST WAY TO WRITE OFF THE LAPTOP I BOUGHT IN 2016?
BarbaraW: There are various rules for deducting the cost of equipment purchases. The one to use depends on eligibility. You can use the Sec. 179 deduction to write up purchases up to $500,000 if you’re profitable. There’s also bonus depreciation and regulation depreciation. Instead of depreciation, you can treat the cost as material and supplies (the asset doesn’t go on the balance sheet) up to $2,500 per item or invoice.
SmallBizLady: LAST YEAR I USED THE STANDARD MILEAGE RATE TO WRITE OFF BUSINESS DRIVING? WHAT SHOULD I DO THIS YEAR?
BarbaraW: You can deduct the cost of business driving in your personal vehicle. You can deduct your actual costs or use the IRS mileage rate: 54 cents per mile in 2016. However, if you previously deducted actual costs, you may not use the standard mileage rate this year. You MUST have required substantiation for your driving…odometer reading, date, destination, and purpose of the trip. There are apps you can use for this purpose.
SmallBizLady: I HAVE A SEP. CAN I ALSO CONTRIBUTE TO A ROTH IRA?
BarbaraW: If you have a SEP for your business, you can also contribute to a Roth IRA. While there’s no deduction for Roth IRA contributions, investment returns build up tax free. However, there are income limits on eligibility to contribute, so check this out. The limits are based on modified adjusted gross income.
SmallBizLady: I NEED TO REPLACE MY VEHICLE THIS YEAR. SHOULD I BUYER OR LEASE?
BarbaraW: Deciding to buy or lease a vehicle is based more on non-tax than tax considerations. Leasing usually lets you drive a more expensive vehicle for the same dollars. It may be better for your balance sheet to buy or to lease. Either way, the write-offs are similar; the standard mileage rate can be used for a vehicle that’s owned or leased. Best bet: run the numbers.
SmallBizLady: I’M A CONSULTANT AND MY 1099 SHOWS A CLIENT’S REIMBURSEMENT FOR MY TRAVEL. WHAT SHOULD I DO?
BarbaraW: Reimbursements for your travel reported on Form 1099-MISC are taxable. However, you can deduct your travel costs, making this a wash. To deduct travel costs, you must have required substantiation. Going forward, use an app to track your travel expenses.
SmallBizLady: CAN I REIMBURSE EMPLOYEES FOR THEIR PERSONAL HEALTH COVERAGE?
BarbaraW: If you’re not a large employer subject to the employer mandate under Obamacare, then yes. However, starting in 2017, reimbursements are permissible only under a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). The amount of reimbursements is capped and other rules apply.
SmallBizLady: WHAT’S THE FILING DEADLINE FOR MY LLC RETURN?
BarbaraW: Limited liability companies that file partnership returns and report on a calendar year have a new due date this year: March 15, 2017, for 2016 returns. This is the same date that applies to S corporations. LLCs/partnerships/S corporations can obtain a 6-month filing extension. Tax returns for calendar year C corporations also have a new due date: April 18, 2017. They only have a 5-month filing extension.
SmallBizLady: HOW MUCH OF A SALARY SHOULD I TAKE FROM MY S CORPORATION?
BarbaraW: Owners can due salary payments to avoid employment taxes. Owners who work for their S corporations must take reasonable compensation for the work they do. What’s reasonable? What would you pay someone else for the work? What are competitors paying? Most importantly: what can the company afford to pay?
SmallBizLady: SHOULD I DO MY OWN RETURN OR USE A PAID PREPARER?
BarbaraW: Who should prepare your tax return is a matter of personal choice. Most small businesses owners (80% to 90%) use paid preparers. There are many complexities on business returns and professional advice is helpful. Tax preparation costs are deductible.
SmallBizLady: WHAT’S GOING TO HAPPEN WITH TAX REFORM?
BarbaraW: Who knows at this time? Lower tax rates would be welcomed; other changes maybe not so much. We must watch developments and see whether they influence our business decisions.
If you found this interview helpful, join us on Wednesdays 8-9 pm ET; follow @SmallBizChat on Twitter.
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