Winston Churchill is credited with the saying: “He who fails to plan, plans to fail.” As we approach the end of the 2018 calendar year, that old adage still holds true today; now is the time for your business year-end planning. Here are a few planning tips for you to consider as 2018 comes to a close.
1. UPDATE BOOKS AND RECORDS.
Work now to ensure that you have all of your books and records up to date. It is difficult to make sound financial or tax-planning decisions unless you know the whole financial picture of the business. Understanding the financial picture willset you up for a more efficient tax return season. And do not forget about the corporate formalities associated with your business. Adopting resolutions or ratifying actions already taken on behalf of your business helps ensure that you comply with the formalities of owning a business. While these steps sound simple, they are too often needlessly neglected.
2. ELECT PARTNERSHIP REPRESENTATIVES.
2018 is the first year that a partnership, or entities taxed as partnerships, are required to select a “partnership representative.” Partnership representatives have replaced “tax matters partners” and will be primarily responsible for interacting with, and making many decisions on behalf of, a partnership (or LLC) that is audited by the IRS.
3. MAXIMIZE QUALIFIED BUSINESS INCOME.
This last year introduced significant tax-law changes, primarily as a result of the passage of the Tax Cuts and Jobs Act (the “TCJA”). One of the most significant changes in the TCJA is a potentially huge deduction available to owners of pass-through businesses, such as partnerships and S-corporations. These business owners may be able to deduct up to 20 percent of all qualified business income generated by their pass-through business. The rules related to the deduction can be difficult to understand and apply. If you own an interest in a pass-through business, you should talk to your CPA as soon as possible to see whether there are steps you can take before the close of the tax year to maximize this new deduction.
4. QUALIFIED OPPORTUNITY ZONES.
You may have heard the news about the new “qualified opportunity zones” program, which is arguably the most recognizable change implemented by the TCJA. Under this program, an investor can defer recognition of capital gains, eliminate tax liability for up to 15 percent of those deferred gains, and exempt 100 percent of all post-investment appreciation on those capital gains. And keep in mind that the qualified opportunity zones program is not just for the extremely wealthy; a wide variety of investors may take advantage of the program. But to do so, an investor must invest capital gains in a qualifying fund before Dec. 31, 2019. This is where planning becomes essential. Eligible investments can be difficult to find and take a long time to complete. For example, a qualifying real estate investment can easily take several months to close. So you will want to get started as soon as possible, preferably in 2018.
5. INACTIVE BUSINESSES.
By the end of the year, you should consider closing inactive business entities. You need authorization from the state to open a business, and you need authorization to properly close or terminate the business. As long as there are no known or present creditors of the company and you have no other plans for the entity, you should consider properly dissolving inactive entities to avoid further reporting requirements, and additional state fees.
We hope you find the above information helpful as you conclude a successful and productive 2018. This article is to provide some general guidelines, and we recommend that you get specific advise for your situation.
Mark Hawkins is a director at Fennemore Craig. You can contact him at mhawkins@fcl.