Analyzing the Impact of the New Tax Bill

Posted on by PM Editor

The Tax Cuts and Jobs Act was signed into law in December 2017. (1) According to experts, this law represents a significant modification of the existing tax law. Without any doubt, this law has an impact on tax planning for this year and that’s why it is crucial to have a professional tax expert on your side.

This is one of those laws that affect both individuals and businesses. The main accent is placed on the businesses, but millions of Americans will be affected too.

What can business owners expect from the Tax Cuts and Jobs Act?

First of all, they can expect a major reduction in corporate tax rate. At this moment, the United States has a corporate rate set at 35% which makes it one of the highest rates for this type of tax in the world. Thanks to this new bill, the rates will fall down to 21% making our country more competitive on the international market.

In addition, this bill will affect the multinational companies too. With the help of these changes, multinational corporations will be encouraged to bring their capital back to the United States instead of keeping it abroad. It’s also good to mention that the Tax Cuts and Jobs Act will allow businesses to deduct the cost of interest on loans for business activities at 30% of income. Of course, this monumental tax reform will bring other changes that should support the domestic companies.

What can individuals expect from the Tax Cuts and Jobs Act?

Just like the previous law, this one keeps the seven distinctive individual tax brackets. The only thing that has changed is the tax rates. Generally speaking, most people will pay less, although there are some people that will have to pay more in taxes.

In addition, the new bill modifies the income thresholds designed for each individual bracket. This makes the savings even greater. For instance, the highest rate (37%) is for individuals who have an annual income of more than half a million dollars. Last year, the highest rate was 39.6% and it applied to those who earned over $418.000 annually.

Another thing that taxpayers should be aware of is that the majority of itemized deductions are removed from the new law. For examples, the itemized deductions for things like investment expenses, alimony payments, personal casualty losses and tax preparation expenses are removed.

The home mortgage interest deductions are affected too. The Tax Cuts and Jobs Act sets a limit to the mortgage interest deduction – $750.000. In the past, this limit was set at one million dollars. Additionally, interest on home equity loans is not deductible anymore.  Also, people who have estates worth up to 11 million dollars will be exempt from the federal estate tax. The previous law had a different limit – 5.5 million dollars. (2)

Just like the law before, the new Tax Cuts and Jobs Act has some pros and cons. It is up to every business and individual to use the incentives and benefits that this law brings. Using the help of a professional accounting and income tax service provider like TaxPM is always a smart move.

7 Most Overlooked Tax Deductions

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Advice on tax deductions can help you save thousands of dollars in taxable income. Many people forget that the main objective of the IRS is to claim the money that they are entitled to. The rest of that can be deducted. Texas has lower taxes than most States, and on top of that, you can use tax deductions to make things easier. (1) After all, this is one of the reasons why people want to start a business in Texas.

Now let’s check some of the most overlooked tax deductions.

  1. EITC – Earned Income Tax Credit

The Earned Income Tax Credit represents a refundable tax credit. The credit itself was created to support wages for low income and moderate income workers. Those who want to use the refund should file a tax return. The process is a little bit complex and it may be a good idea to hire professional accountants to get the job done.

  1. Changing residence because of a new job or changing a job in general

It turns out that whenever a person has to move from one place to another and this move is over 50 miles away from your current residence can help you deduct specific moving expenses from the taxes. Of course, this relocation must come as a result of the new job you’ve found. This is how the country supports people looking for a job or a better job.

  1. Having a home on leased land

Another great way to deduct some of your taxes is to live in a home on leased land. This situation allows you to deduct rent payments for that land. Once again, we are talking about a complex procedure that requires the attention of a professional tax advisor like the ones from TaxPM.

  1. Home refinancing

Experienced homeowners know that refinancing a home comes with a few fees that can affect your budget. However, you can deduct some of these fees from your taxes. There is actually a list of refinancing deductible items that you can use to your advantage.

  1. Medicare premiums

In case you are a self-employed person, you may be able to deduct the premiums paid for Medicare (parts B and D), Medicare Advantage Plan and Medigap Insurance. You don’t have to itemize deductions to use these deductions.

  1. Casualty loss

Casualty losses represent a specific kind of tax losses that come as a result of an unexpected, unpredictable and sudden event. We are talking about weather-related or fire damage that has led to property loss. If this loss is not covered by an insurance claim, then you can use is at as a tax-deductible item.

  1. Car payments

If you have used your car for business purposes you can deduct actual expenses (oil changes, replacement tires etc.) and/or on the standard mileage rate. This is a nice way to save some money on your tax return. (2)

Keep in mind that these are some of the many overlooked tax deductions. Consult an expert in this area for additional information – contact TaxPM.

Selecting the Right Business Structure – LLC Vs S-Corp

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Did you know that Texas is home to 92 Fortune 500 companies? (1) This is not a surprise for many experts because doing business in Texas is much easier compared to many other states. If you are interested in starting a new business in Texas or you already own one that is not incorporated yet, you should take a few things into account. The most important one is to select the right business structure for your business. Typically, people are making a choice between an S-Corp and a Limited Liability Company or LLC. Before we go into details, let us highlight the basics of incorporation.

Why do you need incorporation in the first place?

The fact is that there is more than one good reason for incorporation. Yet, the crucial one is to protect your personal assets from a judgment or from creditors. But, keep in mind that there are many situations when a corporation wants to buy assets, like a corporate vehicle for their employees for example, and the bank that provides the loan will require a personal guarantee. In case you provide such guarantee, then this corporate asset won’t stay protected by the so-called corporate veil. Don’t forget that the same goes for both LLC and S-Corp. Another advantage of incorporation is to get specific tax benefits. Serious business owners are using professional accounting and tax service providers like TaxPM™. These professionals can provide valuable tips and advice related to tax issues.

What’s an S-Corp?

S-Corps are a type of corporations that are one level closer to a different tax categorization. Those who want to opt for S tax treatment must be employees of the corporation. We are talking about so-called pass-through entities that don’t have to pay corporate tax. The income received by the shareholders is taxed as individual income. However, an S-Corp is not allowed to have more than 100 shareholders and every shareholder must be a US citizen or at least a legal resident. In addition, S-Corp shareholders have equal voting power in the company.

What’s an LLC?

Limited Liability Company or simply LLC can usually provide better liability protection compared to S-Corp. This is a very popular option for many small businesses in Texas. Although it’s essentially a pass-through entity just like S-Corp, it can be taxed as a corporation. (2) Most owners like this business structure due to its flexibility. It’s easy to distribute the company income to specific individual members. They pay shares on their tax return. Another great advantage is that LLC doesn’t have a specific management or structure requirements that should be met.

Final Thoughts

No one can say which option is the best because different businesses have different requirements and needs. Generally speaking, LLCs are much better for small businesses as well as for start-ups. On the other hand, S-Corps are a better option for larger companies.

If you are interested in incorporation, use the professional help provided by experienced and knowledgeable experts in this field. Choose TaxPM™ for the best results.

 

Advantages of LLC Formation

Posted on by PM Editor

There are many things that people should think about when they are planning on launching a new business in Texas. One of the crucial things in this process is to select the business structure that provides the greatest advantages to their business operations. According to some statistics, Limited Liability Companies or LLCs are the most common type of business entity in Texas. (1) On top of that, incorporation of LLC is not a difficult task. With the right help provided by true professionals like the ones from TaxPM, you should be able to finish this job without any hassles and in no time. LLC creates an ideal mixture of liability protection typical for corporations and flexibility usually found in partnership. It includes some of the best things from both worlds.

If you are still not sure whether you should select an LLC instead of a corporation, we will provide a list of advantages related to LLCs that should tell you whether your business is the right candidate for LLC incorporation/formation.

It keeps the personal assets protected

If you form an LLC, you will get a chance to keep your personal assets safe from the company assets in cases of company lawsuits. In other words, LLC keeps your personal assets protected at all time.

It can help you with taxation

This is another huge advantage of LLC incorporation because you will have an opportunity to select how exactly you are taxed. The tax rate associated with LLC is linked to the owner’s income. To put it in simple words, you can adjust the taxation and pay less in the end.

It avoids double taxation

As you are probably aware, corporations can’t avoid double taxation at least not completely. Namely, corporations are taking care of these taxes at the corporate level and after that, they are paying the taxes on the income which come in the form of dividends. But, LLC doesn’t have to deal with double taxation. You can file returns, but it’s better to rely on professional accounting services for this purpose.

Flexibility while doing business

In case you are managing an LLC, then you will have more options in how to manage your business. It’s possible to add new members to the business without following lengthy procedures. The main purpose of LLCs is to provide business owners flexible business structures that can help them run their companies smoothly.

It cuts IRS audit risks

When compared to a sole proprietorship, an LLC is at lower risk of audits. In case you are thinking about forming an LLC, then you should know that the risk of IRS audit is minimized. (2)

It allows leasing personal assets

Finally, it is possible to lease your own personal assets to your company. In other words, you can manage your LLC even from your home and report that the LLC is actually leasing the office space (your home) from you.

These are some of the things that make LLC a good option for those looking for the right business structure.

 

Launching a Business in Texas

Posted on by PM Editor

The latest reports have shown that the number of new businesses is stagnating nationwide and Texas is not an exception. (1) However, this doesn’t mean that you should give up on your dream especially if you have a solid business idea and you are determined to succeed. Launching a business in Texas is a smart idea for more than one reason. This is a state with low taxes, business-friendly laws, excellent infrastructure and other things that make it an ideal business location. In this article, we will highlight a basic guide to launching a business in Texas.

  1. Choose the best business structure

If you want to support the growth of your business, you should create an adequate structure from the start. There are a few different types of business structures including sole proprietorships, corporations, partnerships and limited liability companies. Select the one that suits your business needs and plans. If you make the right decision, you can expect tax breaks and a wide array of benefits. That’s why it’s a smart move to talk to a professional in this field. TaxPM is definitely the place where you can find such help.

  1. Registration

Once you select the right business structure, you will have to register your business with the Texas Secretary of State. The only exception is sole proprietors, but they usually have to register with their counties of operation. It is possible to register a business over the Internet or use your local county clerk office. One of the crucial steps in this procedure is to find a unique name for your business. Do this carefully because a business name can be a deal maker or a deal breaker for many modern consumers. (2)

  1. Check the permits

The next step is to learn more about the permits, licenses, certifications, and registrations that your business might need. There is no general business license in Texas, but almost every industry comes with regulatory agencies. Those selling taxable goods or providing taxable services should apply for sales and use tax permit.

  1. Create bank accounts

When it comes to taxation, this is one of the most important steps. Companies need EIN (Employer Identification Number) provided by the IRS. Sole proprietors can use their social security number for tax purposes. It’s possible to get an EIN online.

  1. Start promoting your business

There are thousands of businesses in Texas which means that you have to do something to get noticed. The last step of the process is to start promoting your new business. The good news is that there are many different marketing options for businesses today. So, you can use some classic forms of marketing like newspaper ads or TV commercials, but you can also use Internet marketing which has proven to be even more effective today.

If you want to speed up this process and finish it in the best possible way, feel free to contact TaxPM – our experts will be glad to help you.