Tax planning is crucial for businesses in the Pasadena area and beyond, yet many business owners wait until tax time each year to take a look at their annual tax burden. It is far more effective—and profitable—to sit down with a tax professional in advance and on a regular basis, in order to maximize deductions and reduce tax liabilities. That’s the heart of the tax planning process.
The foundation of any tax planning strategy for Pasadena business owners is to review the business’ income and expenses each month and meet quarterly with your tax advisor to identify how your Pasadena business can capitalize on the various available provisions, credits and deductions. Some more specific suggestions follow.
Key Tax Planning Strategies
There are many possible tax planning strategies for Pasadena business owners to explore. At their core, however, all are based on the concept of structuring the strategy to accomplish one or more of these goals:
- Lower tax rates
- Mitigating common planning errors
- Managing timetables for paying taxes
- The claiming of all available tax credits
- Reduced taxable income
- Directing the effects of the Alternative Minimum Tax (AMT)
To achieve these goals, start by estimating your personal and business income for the next few years, which may dictate which strategy you use. From there you can utilize these projections to estimate your tax bracket.
Some things you’ll want to consider when developing a tax planning strategy for your Pasadena business include:
1. Take advantage of business vehicle deductions.
Business owners who use their car for business purposes like off-site business meetings and visiting clients may be permitted to deduct the cost of operating and maintaining that vehicle. This may be claimed by deducting either the standard mileage rate or the actual expenses incurred. The 2018 mileage reimbursement rates are $0.54 per business mile, $0.14 per charitable mile and $0.18 for moving and medical miles. If you own two cars that are used for the business, you can deduct for both cars. Just be sure to keep accurate records, including mileage and related receipts.
2. Optimizing business entertainment expenses.
You may not be aware that you can legally deduct entertainment expenses (such as client dinners) from your tax bill, lowering your liability and saving your business money. To use this deduction, business topics must be discussed before, during, or after the meal and the surroundings must be conducive to a business discussion. (A quiet, small café works; a loud bar or nightclub does not.)
Taxpayers who incur food and beverage expenses associated with operating a trade or business may deduct 50 percent of the bill, as stated by the Tax Cuts and Jobs Act of 2017. However, in tax years 2018 through 2025, the 50 percent deduction expands, to include expenses incurred for meals furnished to employees for the convenience of the employer. (Amounts after 2025 are not deductible.) When traveling for business, meals remain 50 percent deductible.
3. Home office deductions help.
There are many nuances of properly claiming home office deductions, but the tremendous value this deduction affords business owners in the Pasadena area and beyond makes a little extra effort and record-keeping worth the while. For any business owner who uses a home office even part of the time, some practical steps you can take to ensure smooth filing include:
- Listing your home phone number and address on business cards
- Asking guests to sign a log book when they visit your office
- Deducting long-distance phone charges
- Maintaining a time and work log
- Keeping all receipts and paid invoices
4. Don’t forget equipment!
According to Section 179 expensing for tax year 2018, business owners can immediately deduct—instead of depreciating over time—$1 million of the first $2,500,000 million of qualifying equipment put into service during a given tax year. This may be new or used equipment, including some software, and all depreciable home office equipment. Businesses with eligible assets put into service after September 27, 2017, and before January 1, 2023, are allowed to immediately deduct 100 percent of the cost; bonus depreciation will phase downward to 80 percent in 2023, 60 percent in 2024, 40 percent in 2025 and 20 percent in 2026.
For more information on services we provide to businesses and individuals in the Pasadena area, please visit our dedicated Pasadena tax services page.
***Are you a Pasadena business owner looking to better plan your taxes and make the most of your potential deductions and credits? Call us today at (818) 242-4888 or schedule your free 30-minute consult now. Robert Hall & Associates is a leading corporate and business tax preparer and consultant serving Pasadena, Glendale, Burbank and the Greater Los Angeles area. Our team of enrolled agents can guide you through the business tax planning process and advise you on the documentation you will need.