The good news this year is that the majority small businesses are affected by only two tax changes for the year ahead. Both changes are effective January 1. The first change will increase stress and the risk of automatic tax penalties. The second offers big potential tax savings. It makes sense for small business owners to be familiar with both and get an early jump on both issues before December 31.
Change #1: Earlier information reporting with higher penalties. If you pay employees or contractors, the deadline for reporting to the IRS is January 31. The penalties for missing the deadline are increased after January 31. If I am handling your payroll reporting then there is nothing to worry about. This timely reporting is included in the payroll service at no extra charge. Other business owners will want to check with their provider to confirm that the new requirements are met.
Change #2: More write-offs of employee medical expenses. The severe restrictions on health care reimbursements imposed by the Affordable Care Act are gone. Small businesses can reimburse employees up to $5,000 on a tax-free basis for their individual insurance or out-of-pocket expenses. The combined employer and employee tax savings add up to about $2,000 per employee per year. There are three requirements: 1) The plan must document in writing that it meets legal requirements, 2) details of the benefit plan are communicated to employees, and 3) claims be validated by someone other than the employer. Typically this means preparing a plan document, sending a summary description to employees and providing a third-party claim processing service reporting to payroll processing. I offer all three of these services through the Freedom Benefits Health Reimbursement Arrangement (HRA) to business tax clients at no additional charge. Others may access the same service at a small fee. The plan must be set up in advance in order to enjoy the tax benefits for 2017.