With the month of January soon coming to an end, the 2017 tax season is upon us. And although small businesses in the area don’t have much to worry about as far as changes in tax law are concerned during this tax season, tax experts are telling business owners they should start preparing now for the 2018 tax season and the Trump Administration’s new tax law that was approved by Congress and went into effect on Dec. 22, 2017.
Originally introduced to Congress as the Tax Cuts and Jobs Act of 2017, the new legislation amends the Internal Revenue Code to reduce tax rates and modify policies, credits and deductions for individuals and businesses. Although changes to individual tax rates are significant, they are temporary and a bit simpler than the more permanent, fairly comprehensive changes to the business tax landscape.
“I think, in talking with our clients and doing tax planning, one misconception is that people are thinking the 2018 laws are in effect,” said Trevor Hahn, a CPA with Camas-based Barrett & Company. “There actually are a few things that passed retroactively, such as businesses get to take 100 percent bonus depreciation. This is one tool businesses can plan on using to defer as much income as possible when the income hits go into 2018 at lower rates.”
Hahn said that other than the new tax bill being passed, the 2017 tax season is a pretty standard tax season, and there aren’t many differences this year compared to past years. Just like any other tax year, Hahn said they like people to get their stuff in as soon as possible and not to wait until the last possible day.
“A lot of people think that since there is a filing deadline of April 17 and they can file an extension, they think it’s an extension to pay,” Hahn said. “It’s an extension to file. You have to make sure your tax liability is paid by April 16. If you get your information in as soon as possible, we’re going to have a much better understanding of what you need to pay. We don’t want you to underpay your 2017 tax bill. It’s best to avoid that stuff and give your tax preparer a lot of cushion.”
Prepare now for tax law changes in 2018
So, since 2017 is looking to be a pretty standard year as far as tax preparation goes, most CPAs in the area are encouraging their clients to start preparing now for the changes that will be in effect during the 2018 tax season.
Alex Barrett, also a CPA with Barrett & Company, said that about 90 percent of their clients are in the construction/manufacturing industry, and this new tax legislation is going to be a good deal especially for those clients. Engineers and architects are not subject to the limitation for specified service businesses in regards to the Qualified Business Income (QBI) deduction, making these tax changes very attractive to employers in those industries.
“What is proposed in that tax package is going to be really good for people in manufacturing and construction,” Barrett said. “It’s all in alignment in the theme of his (Trump’s) campaign to rebuild America. The (tax) package is consistent with that, it’s benefits geared towards those industries to help rebuild the United States.”
Tyler Young, a CPA with Northwest Accounting Professionals, LLC, in Battle Ground, also noted that there are not many changes that will impact most businesses during this tax season.
“Otherwise, businesses should be aware that, for the most part, tax rates are going to be lower for 2018 than 2017,” Young said. “They will want to use any income deferral techniques that are available to them. They need to make sure they talk with their accountant before making any decisions, though.”
Young said the best advice he could give businesses is to make sure they start thinking proactively for 2018 and 2019, and make sure their current structure makes sense with all of the new changes.
“They really need to start planning for 2018 now in light of these tax law changes,” Young said. “There are a lot of different things that are happening there, they really need to talk with their accountant and make sure their current structure makes sense with the new tax laws. Don’t wait until next year.”
Other impacts of the new 2018 tax law
In addition to some of the bigger impacts that the new tax legislation will have next year, there are a few smaller things to think about, as well.
Gregory Railsback, president of Railsback Johnson, P.C., in Vancouver, said business owners should be thinking about things like what the cash flow impact of the new tax law is going to be.
“A lot of my clients are looking to grow, but it’s hard to find good people, especially in some of the industries that are in high demand right now,” Railsback said. “These tax savings can make it so employers can make more attractive offers to bring on people and continue paying their current staff a good wage. Retaining and attracting talent, the dollars will be helpful in doing that.”
Railsback pointed out a few other small changes that are kind of hidden in the new tax law, such as changes to the ability to deduct client meals and entertainment expenses. Prior to the new tax law, things like a business owner taking a client out for dinner, etc., was 50 percent deductible. In the new law, however, these expenses are not deductible.
“If you’re a business owner, you’re not going to stop doing that just because it’s not deductible,” Railsback said. “If it was a good business decision before, it probably still is today. Sometimes clients get so focused on tax deductions. We want to understand the tax implications, but we’re not going to let them impact all the decisions we make.”
Another small thing in the new tax law that Railsback pointed out is the fact that companies who provide lunch or snacks to their employees can no longer deduct 100 percent of that cost. They can now only deduct 50 percent.
“Again, for example, during tax season we provide lunch for our staff on Fridays and Saturdays,” Railsback said. “We don’t do it because of the tax benefits, it’s to benefit our staff who are working more days, longer hours, etc.”
Railsback said most CPAs are going to be doing a lot of planning after this tax season is over, preparing for the 2018 season and preparing to help their clients as much as they can.
“Really the impact in 2018, based on this law, is going to be deciding what we do going forward,” Railsback said. “What are the client’s goals and objectives? What are they trying to do? Tax benefits shouldn’t change their overall strategy. It’s important to review your strategy and plan, and be as efficient as possible.”
The summary of the new tax law in its entirety can be found here https://www.congress.gov/bill/115th-congress/house-bill/1.
Editor’s Note: A column by Megan Lawson, a CPA with Opsahl Dawson, describing some of the details of the new 2018 tax law can be found on Page 7 of this week’s Vancouver Business Journal.