21 Oct Four Biggest Small Biz Accounting Changes in 2018
Change is in the air this month!
Since the new administration took over almost 2 years ago, there has certainly been a fair amount of change as it relates to accounting and bookkeeping for small business. Here is a recap of the biggest changes that I have seen come across my desk and impacted the way we track our client’s small business finances in the past year.
- The Tax Cuts And Jobs Act of 2017 has definitely changed the way we view Meals and Entertainment expenses as a small business. Where in the past, meals and entertainment were at least a partial business expense, this act has changed things significantly. Gone are the days of purchasing season box seats at the Bears, Bulls, or Cubs…this is now a non-deductible expense. Please see the attached FREEBIE on our website to delve into how Meals and Entertainment expenses were viewed by the IRS, and how they are now viewed today. Please note, food and beverage purchased by the business on behalf of employees and clients will be completely eliminated as a deduction by 2025.
- Pass-through entities, most typically known as S Corps in the small business community, have been historically taxed according to the owner’s personal tax rate (hence the term “pass-through”). Under the tax code rewrite, you may be able to deduct up to 20 percent of income. These credits are temporary, set to expire after 2025. Caveat: If your business is a form of “professional service”–such as legal consulting or outsourced design work–these credits do not apply.
- There was a landmark case that went all the way to the Supreme Court that impacts online retailers and charging sales tax. In South Dakota vs. Wayfair Inc. the Supreme Court has ruled in favor of South Dakota, granting the state authority to impose sales tax obligations on out-of-state transactions. This means that if you sell into states where you’re not registered to collect and remit sales tax, economic nexus can change your tax obligations. Rather than require a physical presence in a state, economic nexus is based entirely on sales revenue, transaction volume, or a combination of both. There are other ways beyond economic nexus that will impact sales tax rates charged by businesses. Affiliate nexus (ties to in-state affiliates), click-through nexus (links on in-state websites), cookie nexus (placing software or apps on in-state devices), tax on marketplace sales (facilitator held liable), and non-collecting seller use tax reporting (non-collecting sellers must share consumer use tax information) are also some fun new terms that are popping up in the world of Sales Tax Payable for small business.
- In the past, the words “Made In China” has been seen as sign of low pricing for many consumers in the United States, however this may be changing. Tariffs have made a big comeback in the administration, which can be both good and bad for small businesses, dependent upon where they source their goods…the Trump administration says tariffs on thousands of items from ball bearings to circuit boards are designed to counter what it sees as unfair trade practices that give Chinese firms a leg-up over their U.S. rivals. Because of this, the U.S. has imposed 25% tariffs on $34 billion of Chinese imports. There is also a list of $16 billion in Chinese imports that will be subject to 25% tariffs. The impact is now being felt particularly acutely by small businesses and startups. Tariffs throw a wrench into pricing calculations and eat into profit margins in smaller firms. They are also are less able to shift production to other locations and have smaller reserves to draw on when times get tough.