Contending with taxes can be a headache for small business owners, especially when the new year brings in a lot of additions and alterations to the tax code. Having a strong grasp of what’s different for filing your business taxes in 2017 means you’re more informed and can make better decisions about doing them yourself, working with a tax professional or using a mix of both strategies.
Let’s look at some of the changes that will affect a variety of small businesses throughout the year:
Changes to Section 179 and depreciation deductions
Section 179 of the tax code allows businesses to take deductions of as much as $500,000 as an expense deduction for equipment not costing more than $2 million in one tax year, Entrepreneur said. The full cost of the item at purchase can be deducted as an expense from the gross income of the business, up to the $500,000 limit, Section179.org said. That’s an alternative to spreading the deduction for equipment depreciation across multiple years of tax returns.
There are some requirements to use the expense deduction, including the need to put the equipment – which can include a variety of machinery, hardware and computer software – into service in the same year the deduction is taken. The equipment must also be used for business purposes at least 50 percent of the time.
Filing deadlines change
Business News Daily highlighted a few very simple changes to business tax rules that could nevertheless mean negative consequences for any organizations that don’t realize what has happened. The deadlines for filing taxes for three types of businesses have changed:
- C-corporations, which use IRS form 1120, must now file their taxes by April 15. The previous deadline was March 15. That gives companies organized under C-corporation guidelines another month to get all their information together and complete the necessary work.
- Partnerships, which also use form 1120, have an advanced deadline of March 15. In past years, partnerships had until April 15 to file.
- S-corporations, which use form 1120-S, also have to file by March 15. This type of business is experiencing the same change as partnerships, as the old filing deadline was April 15.
Failing to file on time means additional work, the possibility of increased IRS scrutiny or penalties. If your company can’t file by the deadline, you need to request an extension from the IRS and make estimated payments on the amount the business is expected to owe. It’s also important to check in about any changes to state-level filing deadlines for taxes, as those guidelines can vary significantly.
The final years of bonus depreciation, potentially
Bonus depreciation is a tax rule that allows businesses to deduct 50 percent of the depreciation value of qualifying equipment and software purchases in the first year, instead of spread out across many. The items must be new and be put to use in the same tax year in which they are purchased. Entrepreneur said companies need to take a good look at this rule, as a lack of Congressional action could mean the bonus percentage will fall in coming years. That means a lower benefit with each passing year and expiration in 2020, Business News Daily said, although Congress has extended the bonus depreciation timeline, part of the PATH Act, in the past.
Working through the many complex tax changes presented each year can be complicated, but it positions small business owners for success. A good understanding of these changes means a better picture of your financial obligations, any need to acquire a small business working capital loan, opportunities for future years and much more.