Tax

If you have children, you may be able to reduce your tax bill using these tax credits and deductions.

1. Child Tax Credit: You may be able to take this credit on your tax return for each of your children under age 17. Qualifying dependents must have a valid Social Security Number. This credit is refundable, which means you may a refund even if you don’t owe any tax.
2. Credit for Other Dependents: This is a new tax credit under tax reform and is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer. This credit is nonrefundable.
3. Child and Dependent Care Credit: You may be able to claim this credit if you pay someone to care for your child under age 13 while you work or look for work. To claim this credit you will need to accurately track your child care expenses.
4. Earned Income Tax Credit: The EITC is a benefit for certain people who work and have earned income from wages, self-employment, or farming. EITC reduces the amount of tax you owe and may also give you a refund.
5. Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt a child.
6. Coverdell Education Savings Account: This savings account is used to pay qualified expenses at an eligible educational institution, which starting in 2018, includes primary and secondary schools as well as colleges and vocational schools. Contributions are not deductible; however, qualified distributions generally are tax-free.
7. Higher Education Tax Credits: Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credits are education tax credits that reduce your federal income tax dollar for dollar, unlike a deduction, which reduces your taxable income.
8. Student Loan Interest: You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income, so you do not need to itemize your deductions.

As you can see, having children can impact your tax situation in multiple ways. Make sure that you’re taking advantage of credits and deductions you’re entitled to by speaking to a tax professional today.

• By Leon Clinton
• December 13, 2018

When it comes to creating a budget, it’s essential to estimate your spending as realistically as possible. Here are five budget-related errors commonly made by small businesses and some tips for avoiding them.

1. Not Setting Goals. It’s almost impossible to set spending priorities without clear goals for the coming year. It’s important to identify, in detail, your business and financial goals and what you want to achieve in your business.
2. Underestimating Costs. Every business has ancillary or incidental costs that don’t always make it into the budget. A good example of this is buying a new piece of equipment or software. While you probably accounted for the cost of the equipment in your budget, you might not have remembered to budget time and money needed to train staff or for equipment maintenance.
3. Forgetting about Tax Obligations. While your financial statements may seem adequate, don’t forget to set aside enough money for tax (e.g., payroll and sales and use taxes) owed to state, local, and federal entities. Don’t make the mistake of thinking this is “money in the bank” and use it to pay for expenses you can’t afford or worse, including it in next year’s budget and later finding out that you don’t have the cash to pay for your tax obligations.
4. Assuming Revenue Equals Positive Cash Flow. Revenue on the books doesn’t always equate to cash in hand. Just because you’ve closed the deal, it may be a long time before you are paid for your services and the money is in your bank account. Easier said than done, perhaps, but don’t spend money that you don’t have.
5. Failing to Adjust Your Budget. Don’t be afraid to update your forecasted expenditures whenever new circumstances affect your business. Several times a year you should set aside time to compare budget estimates against the amount you spent, and then adjust your budget accordingly.

Please call if you need assistance in setting up a budget to meet your business financial goals.

• By Leon Clinton
• December 11, 2018

Here’s what business owners need to know about tax changes for 2018.

Standard Mileage Rates 
The standard mileage rate in 2018 is 54.5 cents per business mile driven.

Health Care Tax Credit for Small Businesses 
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000 (adjusted annually for inflation). In 2018 this amount is $53,200.

In 2018 (as in 2014-2017), the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers. For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.

Section 179 Expensing and Depreciation

Under the Tax Cuts and Jobs Act of 2017, the Section 179 expense deduction increases to a maximum deduction of $1 million of the first $2,500,000 of qualifying equipment placed in service during the current tax year. The deduction was indexed to inflation after 2018 and enhanced to include improvements to nonresidential qualified real property such as roofs, fire protection, and alarm systems and security systems, and heating, ventilation, and air-conditioning systems.

Businesses are allowed to immediately deduct 100% of the cost of eligible property placed in service after September 27, 2017, and before January 1, 2023, after which it will be phased downward over a four-year period: 80% in 2023, 60% in 2024, 40% in 2025, and 20% in 2026. The standard business depreciation amount is 25 cents per mile (same as 2017).

Please call if you have any questions about Section 179 expensing and the bonus depreciation.

Work Opportunity Tax Credit (WOTC)

Extended through 2019, the Work Opportunity Tax Credit remained under tax reform and can be used by employers who hire long-term unemployed individuals (unemployed for 27 weeks or more). It is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit.

SIMPLE IRA Plan Contributions
Contribution limits for SIMPLE IRA plans increased to $12,500 for persons under age 50 and $15,500 for persons age 50 or older in 2018. The maximum compensation used to determine contributions is $275,000.

Please contact the office if you would like more information about these and other tax deductions and credits to which you are entitled.

• By Leon Clinton
• December 9, 2018