Tax credits reduce tax liability dollar-for-dollar, potentially making them more valuable than deductions, which reduce only the amount of income subject to tax. Maximizing available credits is especially important now that the Tax Cuts and Jobs Act has reduced or eliminated some tax breaks for businesses. Two still-available tax credits are especially for small businesses that provide certain employee benefits.

1. Credit for paying health care coverage premiums

The Affordable Care Act (ACA) offers a credit to certain small employers that provide employees with health coverage. Despite various congressional attempts to repeal the ACA in 2017, nearly all of its provisions remain intact, including this potentially valuable tax credit.

The maximum credit is 50% of group health coverage premiums paid by the employer, if it contributes at least 50% of the total premium or of a benchmark premium. For 2017, the full credit is available for employers with 10 or fewer full-time equivalent employees (FTEs) and average annual wages of $26,200 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,400.

The credit can be claimed for only two years, and they must be consecutive. (Credits claimed before 2014 don’t count, however.) If you meet the eligibility requirements but have been waiting to claim the credit until a future year when you think it might provide more savings, claiming the credit for 2017 may be a good idea. Why? It’s possible the credit will go away in the future if lawmakers in Washington continue to try to repeal or replace the ACA.

At this point, most likely any ACA repeal or replacement wouldn’t go into effect until 2019 (or possibly later). So if you claim the credit for 2017, you may also be able to claim it on your 2018 return next year (provided you again meet the eligibility requirements). That way, you could take full advantage of the credit while it’s available.

2. Credit for starting a retirement plan

Small employers (generally those with 100 or fewer employees) that create a retirement plan may be eligible for a $500 credit per year for three years. The credit is limited to 50% of qualified start-up costs.

Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.

If you didn’t create a retirement plan in 2017, you might still have time to do so. Simplified Employee Pensions (SEPs) can be set up as late as the due date of your tax return, including extensions. If you’d like to set up a different type of plan, consider doing so for 2018 so you can potentially take advantage of the retirement plan credit (and other tax benefits) when you file your 2018 return next year.

Determining eligibility

Keep in mind that additional rules and limits apply to these tax credits. We’d be happy to help you determine whether you’re eligible for these or other credits on your 2017 return and also plan for credits you might be able to claim on your 2018 return if you take appropriate actions this year.

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Every company, big or small, should have a mission statement. Why? When carefully conceived and well written, a mission statement can serve as a beacon to the world — letting everyone know what the business stands for and where it’s headed. It can build customer loyalty and mobilize people behind a common cause. And it can define the company’s collective personality, provide clear direction, and most of all, serve as a starting point for all of your marketing efforts. Here are some elements to consider when writing a mission statement:

Target audience. This starts with customers, of course. But it also includes employees, job candidates, investors, lenders and the community at large. You can focus a mission statement on a combination of these groups or just one of them.

Length. Some mission statements are only a single sentence. Others are long and complex, encompassing philosophies, objectives, plans and strategies. Generally, it’s best to come up with something in the middle that’s concise, easy to understand and actionable — again, a viewpoint from which your company will express itself and make decisions.

Tone. Establishing the correct tone involves a process of intentional word selection. If the language is too flowery and cumbersome, readers may not take a mission statement seriously. Then again, something too short may come off as vague or flippant. Use appropriate language that’s directed at the target audience and reflects your strategic plans.

Endurance. A mission statement should be able to withstand the test of time and, ultimately, have meaning in the long term. By the same token, its language should be current enough to reflect changes in the business and its competitive environment. A statement created years ago may no longer be relevant.

Distinctiveness. Every company is different — even those in the same industry. Customize your mission statement to express what’s different and distinguishing about your business.

An effective mission statement can be a great asset to an organization. Develop yours as part of an overall strategic planning process, starting with an analysis of your company’s culture, development, and prioritization of goals and objectives. Contact our firm to discuss this and other ways to enhance profitability.

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Along with tax rate reductions and a new deduction for pass-through qualified business income, the new tax law brings the reduction or elimination of tax deductions for certain business expenses. Two expense areas where the Tax Cuts and Jobs Act (TCJA) changes the rules — and not to businesses’ benefit — are meals/entertainment and transportation. In effect, the reduced tax benefits will mean these expenses are more costly to a business’s bottom line.

Meals and entertainment

Prior to the TCJA, taxpayers generally could deduct 50% of expenses for business-related meals and entertainment. Meals provided to an employee for the convenience of the employer on the employer’s business premises were 100% deductible by the employer and tax-free to the recipient employee.

Under the new law, for amounts paid or incurred after December 31, 2017, deductions for business-related entertainment expenses are disallowed.

Meal expenses incurred while traveling on business are still 50% deductible, but the 50% limit now also applies to meals provided via an on-premises cafeteria or otherwise on the employer’s premises for the convenience of the employer. After 2025, the cost of meals provided through an on-premises cafeteria or otherwise on the employer’s premises will no longer be deductible.

Transportation

The TCJA disallows employer deductions for the cost of providing commuting transportation to an employee (such as hiring a car service), unless the transportation is necessary for the employee’s safety.

The new law also eliminates employer deductions for the cost of providing qualified employee transportation fringe benefits. Examples include parking allowances, mass transit passes and van pooling. These benefits are, however, still tax-free to recipient employees.

Transportation expenses for employee work-related travel away from home are still deductible (and tax-free to the employee), as long as they otherwise qualify for such tax treatment. (Note that, for 2018 through 2025, employees can’t deduct unreimbursed employee business expenses, such as travel expenses, as a miscellaneous itemized deduction.)

Assessing the impact

The TCJA’s changes to deductions for meals, entertainment and transportation expenses may affect your business’s budget. Depending on how much you typically spend on such expenses, you may want to consider changing some of your policies and/or benefits offerings in these areas. We’d be pleased to help you assess the impact on your business.

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The number of taxpayers who itemize deductions on their federal tax return — and, thus, are eligible to deduct charitable contributions — is estimated by the Tax Policy Center to drop from 37% in 2017 to 16% in 2018. That’s because the recently passed Tax Cuts and Jobs Act (TCJA) substantially raises the standard deduction. Many not-for-profit organizations are understandably worried about how this change will affect donations. But this isn’t the only TCJA provision that affects nonprofits.

Donors have fewer incentives

In addition to reducing smaller-scale giving by shrinking the pool of people who itemize, the TCJA might discourage major contributions. The law doubles the estate tax exemption to $10 million (indexed for inflation) through 2025. Some wealthy individuals who make major gifts to shrink their taxable estates won’t need to donate as much to reduce or eliminate their potential estate tax.

UBIT takes a bigger bite

The new law mandates that nonprofits calculate their unrelated business taxable income (UBTI) separately for each unrelated business. As a result, they can’t use a deduction from one unrelated business to offset income from another unrelated business for the same tax year. However, they can generally use one year’s losses on an unrelated business to reduce their taxes for that business in a different year. The TCJA also includes in UBTI expenses used to provide certain transportation-related and other benefits. So, the unrelated business income tax (UBIT) a nonprofit must pay could go up.

High compensation risks new tax

Nonprofits with highly compensated executives may now potentially face a 21% excise tax. The tax applies to the sum of any compensation (including most benefits) in excess of $1 million paid to a covered employee plus certain large payments made to that employee when he or she leaves the organization, known as “parachute” payments. The excise tax applies to the amount of the parachute payment less the average annual compensation.

Bond interest exemption revoked

The TCJA repeals the tax-exempt treatment for interest paid on tax-exempt bonds issued to repay another bond in advance. An advance repayment bond is used to pay principal, interest or redemption price on an earlier bond prior to its redemption date.

Be informed

Note that other rules and limits may apply. We can provide you with a detailed picture of the new tax law and explain how it’s likely to affect your organization.

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If you wish to protect your assets while retaining some control over them, consider an irrevocable trust. Transferring assets to such a trust generally places them beyond your creditors’ reach. And by including a “spendthrift” provision, you can also protect the assets against claims by your beneficiaries’ creditors. A spendthrift provision prohibits your beneficiaries from selling or assigning their interests in the trust, either voluntarily or involuntarily. Contact us to learn about other asset protection techniques.