Last week we discussed how florists should respond to new tax laws. Today, we're getting into the nitty gritty details of what we learned from our own accountant about how the new US tax law will impact us as small business owners and how we're going to handle it.
OBLIGATORY NOTE: I'm talking about taxy stuff here. Listen to your accountant when making important decisions on your business instead of a random floral shop owner on the internet. That said, here it goes:
Capital Gain Exemption
Every day we speak to a LOT of florists who run their business out of their home. We started our St. Louis shop,
Twisted Willow, out of our basement and, since
we moved to our new shop, we now rent the bottom floor of our house to Twisted Willow and live on the upper floors. We bought our old house as a foreclosure and did repairs, got it all fixed up, sold it and made a nice little profit that we invested directly into our new place. Because we lived there for more than 2 years, we were able
to take advantage of the capital gains exemption when we sold our old house. However, as it stands, the new US tax law will require homeowners to live in the home for 5 years instead of 2.
At some point, we may decide to sell our house and shop (which is why we need records of absolutely everything and Curate is super helpful for us), but in order to take advantage of the capital gains exemption, we'll need to live here for at least 5 years. This is super important to know because it will help us plan our next steps a bit better. This definitely changed up our strategy a bit and it's less than excited to have these options removed. However, as we mentioned last week, we can only change what we have control over so now we know we no longer have that option and we have to figure out other ways to make smart decisions.
Continuing Education Deduction
There's been a lot of talk that continuing educational deductions won't be okay under the new US tax law. We've failed to find any evidence that this is true. Well, sort of. If my wife, Rachael, decided she wanted to take cooking classes (Like she would need it! She's an amazing cook!), she wouldn't be able to deduct those classes as a business expense. However, if she signed up to attend one of Sarah Campbell's workshops on the Intrigue Designs Tour, she could most certainly deduct the cost of attending when she files her 2018 taxes because that is still a legitimate business expense.
It's Better To Take A Take Deduction This Year
If your shop is a pass-through entity (ie sole proprietorships, limited liability companies, and S corporations), the 2018 tax rate is going to most likely be lowered for you (yay!). That means that you can take home more profit on your business. However, it also means that if you're going to make an investment for a tax break, you'll want to do that before the year is over.
If you're considering investing in a florist app like Curate, you'll want to consider signing up for the annual plan before January 1 so that it's a business expense in 2017 while your tax rate is higher and you can get a better deduction. If you'd like to personally talk with me about what we're doing in our shop and see if Curate is right for you, click the button below to schedule a demo!