Surveying the Landscape of Small Business Tax Deductions
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Business expenses are the cost of carrying on a trade or business, and there may be some tax breaks there. But a lot has changed in recent months, and the rules can be complicated.
Are there business deductions you can take advantage of? Yes, but first you have to make sure your expenses are truly business-related. The lines can blur, especially with a small business, because you generally cannot deduct personal, living or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts, and then deduct the business part.
An example: You borrow money and use 70% of it for business and the other 30% for a family vacation. You can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and isn’t deductible.
Let’s look at business use of your car and your home:
- Business use of your car: If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.
- Business use of your home: If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses include mortgage interest, insurance, utilities, repairs and depreciation.
Other types of business expenses? Let’s take a closer look:
- Employees’ pay: You can generally deduct the pay you give your employees for the services they perform for your business.
Retirement plans: These are savings plans that offer you tax advantages to set aside money for your own, and your employees’, retirements. - Rent expense: Rent is any amount you pay for the use of property you don’t own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
- Interest: Business interest expense is an amount charged for the use of money you borrowed for business activities.
Taxes: You can deduct various federal, state, local and foreign taxes directly attributable to your trade or business as business expenses. - Insurance: Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business or profession.
This list is not inclusive but endeavors to offer some common business expenses and explains what is and isn’t deductible. Of course, in some cases, expenses might need to be amortized — deducted over a period of several years — if they are startup costs or if they’re related to the purchase of business equipment.
You must capitalize, rather than deduct, some costs that are part of your investment in your business — these are called capital expenses. Capital expenses are considered assets in your business.
Of course, some business deductions can be very complex, so professional advice is necessary to make sure you’re getting what you’re owed without raising any red flags with the IRS. We’re here to help you with your business tax needs.
Celebrating 10 years of service with a message from James E Heyward, CPA
The Financial Flipside Podcast, Episode 23: Peaks and Valleys or, When Is a Recession Not a Recession?
Photo by Krivec Ales from Pexels
Note: we recorded this podcast in early April, just after the opening of the Paycheck Protection Program and the passage of the CARES Act, so you may hear references to dates that have already come and gone. As of this writing, though, we’re still following the roll out of the second round of the PPP, continued disbursement of EIDL loans and economic impact payments, and like everyone else, trying to be as prepared as we can for what comes next.
Most of the economic news these days is not great: high unemployment, a drop in GDP that brought the US economy’s longest period of expansion to a screeching halt, and of course, the neverending ups and downs of the stock market. Though media sources have already started reporting on “the coronavirus recession” and we’re all feeling the effects of business closures and supply chain disruptions, we’re not technically in a recession. The reason comes down to how we measure economic performance. On today’s episode, we’ll be talking about economic indicators, what a recession is, and why official definitions don’t always match up with our lived experience. We’ll also be discussing some ways to weather an economic downturn, recession declaration or no. We can’t promise to alleviate any concerns you may have about the economy or tell you what to expect in the coming months or years, but we’ll try to provide some actions that you can take in the present.
Check under the cut for show notes and bonus content:
The CARES Act: How it can impact your small business!
4 Areas to Consider When Transitioning Employees to Working From Home
As the effects of COVID-19 become our new reality, businesses that haven’t traditionally embraced remote employees, may find it difficult to keep their operations moving. To make the transition less overwhelming, we assembled a handy checklist of actions to consider while adjusting to the new workplace reality.
- Organization
- Access your staff members and/or roles that are able to work remotely, those that can’t work remotely, and those where remote work may be possible with some modifications.
- Conduct an employee survey to determine the availability of computers that can be used for working remotely, as well as availability to high-speed internet access.
- Create company guidelines covering remote employees, including inappropriate use of company assets and security guidelines.
- Develop and conduct work-at-home- training for using remote access, remote tools, and best practices.
- Select a video-conferencing platform for services, such as Zoom, Cisco WebEx, or Go To Meeting.
- Develop a communications plan to involve remote employees in the daily activities of the organization.
- Security
- Create and implement a company security policy that applies to remote employees, including actions such as locking computers when not in use.
- Implement two-factor authentication for highly-sensitive portals.
- If needed, confirm all remote employees have access to and can use a business-grade VPN, and that you have enough licenses for all employees working remotely.
- Staff
- Institute a transparency policy with your staff and communicate frequently.
- Check-in on your staff, daily if possible, to confirm they are comfortable with working from home. Find and address any problems they may be experiencing.
- Make certain each staff member has reliable voice communications, even if this results in adding a business-quality voice over IP service.
- Don’t attempt to micro-manage your staff. Remember their working conditions at home won’t be ideal, and they will need to work out their own work patterns and schedules.
- Create a phone number and email address where staff members can communicate their concerns about the firm, working at home, or even the status of COVID-19.
- Infrastructure
- Ensure that you have ample bandwidth coming into your company to handle all of the new remote traffic.
- Make sure you have backups of your services so your staff is able to keep working in the event extra traffic causes your primary service to go down.
You may need to adjust or expand this list to match the specific needs of your firm and the conditions affecting your organization. Use this list to get you started and to help guide you through the process.