February 25, 2019 | Last Updated on: January 17, 2024
DISCLAIMER: This article was written in 2019 and has not been updated. For more up to date information on economic impacts to small business funding, please read this recent article Small Business Tax Preparations Tips for Next Year
Businesses and people alike are responsible for filing taxes to the IRS. This means that you must be cognizant of your current financial state and submit all of the necessary tax forms by April 15th, 2019. However, the IRS has changed several tax laws, and some of these will affect small businesses, and the business owners themselves, moving forward. For starters, the tax income rate that applies to certain business structures has changed, in addition to the 2019 tax brackets. The corresponding forms that must be filed have been altered ever so slightly, and this is yet another example of something that you must be mindful of when submitting your tax information. While the changes, on the whole, should be easy for most people to adapt to, it can affect everything from the type of tax deductions you can account for, such as when filing equipment financing for your tax return, among many other things. This article will provide you with a brief overview of tax law changes you must be aware of.
In general, your very first step is to understand that all tax-related information and submissions are subject to IRS’s rules, which is understood as follows:
Missing the deadline will impose certain penalties on you and your business, and this is far from something that you want to deal with. Of course, seeking advice from a financial expert, and in particular, your accounting department is something that you can do as a small business, but it would always be worthwhile to have a general idea about what is expected from you and your company, as its owner.
Depending on the structure of your business, the forms you will have to submit will slightly differ. For example, if you are a corporation, you may be subject to double taxation, thereby requiring you to submit both your personal and business income taxes alike. As a partnership, you can be subject to pass-through taxation, and so on. No matter what business structure you fall into, it’s important to be mindful of the tax rate that you are subject to. If you are a C corporation, for example, the tax rate you are responsible for has changed from 35 percent to 21 percent, as a result of a change The Tax Cuts and Jobs Act enacted in 2017. This is one example of a law that has changed, but moreover, the IRS has changed the tax brackets for 2019, meaning the rate at which an income is taxed. While those with higher incomes pay higher taxes, the individual income tax rates have been lowered. The adjustment has been made so that they correspond with inflation in the country’s economy.
The next order of business is to understand what forms must be submitted, and what has changed. Once again, keep in mind that depending on whether your small business is structured as an LLC, a sole proprietorship, an S-corporation, C-corporation and so on, the corresponding procedure may slightly vary depending on what taxation rules you are subject to. On the whole, in 2019 the three forms, 1040, 1040-A and 1040-EZ have been combined into one form. This must be used by individuals who want to file a federal return, which of course, small businesses should take advantage of. If you took out equipment loans for the company’s sake, especially during the business preliminary years, then this is something that you should record as a deduction in order for you to receive money back.
As the previous section has already mentioned, tax refunds are a necessity for any small business owner to account for. Think about all of the business expenses within the past year, including an interest only business loan, and any other fund spends for the betterment of the company. You can file everything online so that you can receive your refunds within three weeks, and new for 2019 is the fact that The Tax Cuts and Jobs Act doubled the standard deduction. People have the option of either adding up their tax deductions and subtracting it from their gross income, or, people can opt for a standard deduction, meaning you can deduct a set amount.
Every single person gets old with time and must think about their retirement plan, including small business owners. The IRS has increased limits for retirement contributions, meaning that you can now save more in the upcoming years for your retirement years.
The child tax credit will furthermore affect business owners who have families. After all, even if you have to file for your company’s taxes, you still have to account for your personal income taxes, and as always, you want to find ways that you can receive tax refunds. Thus, in this case, it’s important to note that the child tax credit itself has increased.
It is already common knowledge that there is a different tax rate depending on the state that you are located in. The State and Local Tax Deduction (SALT) has changed such that there is now a $10,000 deduction limit, whereas there was no limit before this point. This now means that those living in high tax states will be impacted, and those with a higher income, such as business owners, will be subject to higher tax bills. Knowing that as a small business you want to make profit, you must take into account any changes to existing tax laws, and how they impact you as a company. Given that there are certain states where you are required to pay higher income taxes, you may want to think about setting up your company in a place where the rates are lower, for instance. Doing this, alongside filing out your tax returns more rigorously by noting down all necessary deductions, such as accumulated interest rates for business loans, will be in your best interests.
