Cash or Accrual: Which is Best Post-Tax Reform?

The Tax Cuts and Jobs Act (TCJA) has introduced changes in business qualifications for using the cash-basis or accrual method of accounting. Usually, a small business will use the cash-basis method of accounting and then convert to the accrual-basis reporting as they grow. The switch in methods is usually to conform with U.S. Generally Accepted Accounting Principles (GAAP) and for federal tax purposes. With TCJA changes, this may no longer be the best route for every business.

Classification of Independent Contractors

Using an independent contractor, rather than a traditional employee, can provide many tax advantages. For example, classifying a worker as an independent contractor removes the requirements of overtime pay, unemployment compensation, and other employee benefits. Independent contractors also free a business from payroll tax liability, as well as the task of withholding income taxes and the worker’s share of payroll taxes.

Is S Corp Structure Best for Your Business?

With the new 21% flat income tax rate that applies to C corporations, it may not be as useful to use an S corp business structure as it once was. There are certainly advantages, including limited liability for owners, and no double taxation at the federal level; but, the S corp business structure may have lost advantage for your company.

New Options for Accounting Method

Recently, the eligibility rules for using the cash method of accounting have been loosened under the Tax Cuts and Jobs Act (TCJA). This change in qualifications offers many benefits, especially simplicity, to companies previously obligated to the accrual method.

A New Gift from the Tax Cuts and Jobs Act

A new deduction under the TCJA (Tax Cuts and Jobs Act) gives a break to noncorporate owners of pass-through entities on a portion of their qualified business income. The deduction can reach as much as 20% of qualified business income, though a wage limit does phase in. Generally, this deduction is available to sole proprietorships, partnerships, S corporations, and limited liability companies (LLCs).

Here Are Some Major TCJA Changes Affecting Your Small Business

By this point, small businesses (and their owners) have either filed their 2017 income tax returns or filed for an extension. Now is the time to go over several provisions of the Tax Cut and Jobs Act (TCJA) that might significantly affect taxes for 2018 on out. The changes typically impact tax years beginning after December 31, 2017, and, unless specifically stated, are permanent.