Federal law changes call for more small-business tax planning, experts say
Running a small business can be a fast-paced and exciting job, but the startup mantra to “move fast and break things” can create problems, especially when it comes to accounting.
Accountants and experts said close contact between a small business and its accountants is essential in planning for growth and ensuring that when tax time rolls around, a business doesn’t shell out more than it has to.
Key to that planning is “transparent communication with your accountant about your future plans,” according to Christina Z. Hollingsworth, a partner at Dillwood Burkel & Millar LLP in Santa Rosa.
Hollingsworth said for some small businesses, accounting is an afterthought, but by hashing out a plan with your accountant and staying in touch with them throughout the year, it is easier to plan for different credits later on in the year.
Companies that do research and development, for example, can plan for a credit for that work come tax time and set up their accounts to more easily access that information, Hollingsworth said.
A common practice for small and startup businesses is to issue stock compensation, which can be overlooked on a company’s books because it is a noncash transaction, Hollingsworth said.
“That’s actually expenses ... that needs to be reported and calculated,” she said of stock and warrants issued by small companies.
Small wineries often need help with determining the value and cost of different vintages and varietals, according to Jon Dal Poggetto of Dal Poggetto & Company LLP in Santa Rosa.
“On the accounting side for small wineries, the cost accounting for the inventory is the main thing,” Dal Poggetto said.
He added that because different types of wines have different aging requirements and values, an accounting firm with expertise in the industry can be invaluable to a small winery when they are trying to determine how much their inventory is worth.
Hollingsworth, whose company handles many wine-related clients, said her firm allocates direct cost and indirect costs to different varietals and vintages.
“When you age them, the costs need to follow them,” she said.
A costing analysis can help a winery determine what wines their revenues are coming from and more effectively plan for future production, she said.
The 2017 federal tax law also created a tax deduction for qualifying small businesses intended to imitate the tax breaks that larger corporations enjoy, Dal Poggetto said.
“Because of the new tax law, we’ve seen in 2018 much more sensitivity to the need for planning from our clients,” he said.
The deduction also created more work for accounting firms like his that handle many small business clients.
“We probably spent an extra 10% of our time on tax returns that had the opportunity to get the qualified tax deduction,” Dal Poggetto said.
Staff Writer Chase DiFeliciantonio covers technology, banking, law, accounting, and the cannabis industry. Reach him at firstname.lastname@example.org or 707-521-4257.