By Bernard Abercrombie, CPA, CFP, Managing Partner of Haynie & Company (formerly known as Abercrombie & Associates, PC)
Over the years, I’ve encountered key tax strategies that will benefit any business, whether you’re a $10 million or $100 million company. However, not all companies are aware of these strategies. Smaller companies may not have the oversight of larger companies to seek out these opportunities, and unfortunately, miss out on potential benefits to their bottom line.
I’ve outlined some tax opportunities that you might have missed this tax season.
Research and Development Credit
Research and Development (R&D for short) credits can be provided for companies that create products that require significant financial backing for research on the front and back end.
For example, if a gas company creates a gas pipe support for its operations, the company could be entitled to a tax opportunity for the research conducted on the pipe and its effects on the surrounding environment.
Again, this credit is mostly geared towards companies that require significant research on its product implications. If your company doesn’t create products, however, you may not be eligible for this opportunity.
A lot of smaller businesses (wrongly) assume that they have to contribute too much for their employees’ retirement. However, providing retirement benefits for employees can create a tax opportunity in the long-run. The smaller the business, the more value for retirement for employees.
In order to capitalize on this opportunity, I would suggest meeting with a tax professional to make sure you’re providing an adequate retirement plan for employees without overspending.
This deduction is geared towards your mom-and-pop stores that don’t have the financial portfolio of a much larger corporation.
A flowthrough deduction, which was just introduced in 2018, provides a significant tax opportunity for individuals with “qualified business income” from a limited liability company (LLC), sole proprietorship, or S-corporation.
“Qualified business income” (sometimes seen as QBI) is the net amount of gain, income, losses and deductions for your trade or business. A flowthrough deduction is permissible as 20% of your QBI and is taken “below the line,” which means a reduction in your taxable income but not overall adjusted gross income.
Generally, the deduction cannot exceed 20% of the excess of your taxable income. If your QBI is less than zero, it’s considered a loss from a qualified business for next year.
No matter the tax opportunity, it’s best practice to coordinate with a qualified, knowledgeable tax professional to make sure you’re not missing any potential tax benefits (again, this is for smaller businesses that may not have a dedicated accounting department).
Make sure to alway document your expenses and keep records of all financial transactions: these will make your (and the tax professional) life easier when it comes time to make deductions.
Keep an eye out for receipts, invoices and any other supporting documentation that showed the dollars your company paid out during the tax year. With this documentation, you’ll be able to better understand what tax opportunities you qualify for and how you can benefit your bottom line.
With over 30 years of experience, Haynie & Company (former known as Abercrombie & Associates, PC,) is a full-service CPA firm in Woodlands, TX, with a diverse range of specialities in tax, accounting, estate planning and retirement. We pride ourselves on our professionalism, responsiveness and high-quality services. Contact us today to learn about our offerings and experience our Big Firm Talent, Small Firm Touch.