How can your limited liability company (LLC) best prepare for tax time? Here’s what you need to know.
Affordable Care Act (ACA) Requirements
Provided you pay at least half the cost of healthcare coverage for your employees, you can take the small employer health insurance credit. Since there have been changes in the defined size of a small employer, take a second look at this tax credit, as you might qualify this tax year.
Healthcare information reporting is getting more complicated. For tax year 2017, applicable large employers must file informational returns with the IRS to report health insurance coverage. They also have to issue Form 1095-C to employees. You can’t get around the reporting requirement just because you have more than one location or more than one business.
The PATH Act Extends Tax Changes
At the end of 2015, the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) extended several tax changes for more than one year and made others permanent. Here’s a rundown:
- Section 179 Expensing Limit Rises: Section 179 of the Tax Code says businesses can deduct the cost of new or used tangible personal business property, up to an annual limit, in a single year. The limit has been raised to $500,000 retroactive to January 1, 2015, and you can now buy up to $2 million worth of qualifying business property each year.
- Qualified Real Property Deduction Increases: For 2017, businesses can deduct up to $510,000 worth of improvements under Section 179 and deduct the rest over 15 years.
- Bonus Depreciation: A business that purchases a long-term asset can deduct a large part of its cost in the year of purchase. The bonus depreciation has been retroactively extended from January 1, 2015, through 2019, although it will be phased out over upcoming years. (2015-2017, 50%; 2018, 40%; 2019, 30%).
- Work Opportunity Tax Credit Continues: Tax credits for hiring members of targeted groups (people with disabilities, veterans, ex-felons, etc.) have been extended through 2019; the wage credit for hiring active-duty members of the military is now permanent.
In addition, you should discuss any changes in your state’s tax laws with your accountant.
Last-Minute Steps to Savings
Once you’ve taken any changes into account, how else can you cut your tax bill and your risk of audits or fines? File on time, and keep good records for any business deductions.
You can also lessen the tax bite by setting up a Simplified Employee Pension (SEP) plan. No matter what your form of business, you have until the extended due date of your return to set up and fund a SEP plan.
Forms, Deadlines and Penalties
One of the benefits of forming an LLC is the option to choose how you want to be treated at tax time. You can elect for your LLC to be treated as a partnership, sole proprietorship or corporation, depending on the number of members in the LLC and their level of involvement in the business. Your chosen tax treatment determines what tax forms you use to file business taxes.
Unless otherwise noted below, the deadline to file taxes for tax year 2017 is April 17, 2018. A request for an extension must be filed by the date your taxes are originally due; use Form 7004 unless otherwise noted.
- If the only member of the LLC is an individual, or what is known as a “sole proprietor,” then the LLC’s income and expenses are reported on Form 1040, Schedule C, E or F. Request a personal extension using Form 4868; this extends the filing deadline for both business and personal taxes. Learn about filing as a sole proprietor here.
- If the only member of the LLC is an S corporation or C corporation, then the LLC’s income and expenses are reported on the respective corporation’s return, usually Form 1120 or Form 1120S. The filing deadline for corporations is March 15. See our pieces on filing as an S corporation or C corporation.
- Most LLCs that have more than one member file a partnership return using Form 1065. Learn about what’s needed to file a partnership return here.
In addition to keeping your books in order, you should also work with a qualified tax advisor who is familiar with small business. This person will be up-to-date on the myriad of changes to tax law each year.
For more info, see our guides to taxes for small businesses to learn more about taxes for LLCs as well as other types of business entities.