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Surveying the Landscape of Small Business Tax Deductions

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Photo by Solo Shutter from StockSnap

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.

The Financial Flipside Podcast, Episode 23: Peaks and Valleys or, When Is a Recession Not a Recession?

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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:

[Read more…] about The Financial Flipside Podcast, Episode 23: Peaks and Valleys or, When Is a Recession Not a Recession?

Heyward CPA Merges with A-OH Business

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Father & son unite to expand their top-notch east coast accounting practice


DURHAM, N.C. – Feb. 2, 2019 — James Heyward, Principal: of Heyward CPA PLLC is proud to announce a merger with A OH Business Services, NYC, effective January 2019.  Heyward CPA PLLC, is a prestigious Durham, North Carolina based firm that provides tax, accounting, and advisory services to businesses and their owners.  A-OH Business Services was established in Queens, New York, by Oscar Heyward in 1982 and provides similar services to individuals, businesses, and tax-exempt organizations, with a specialization in pre-k & afterschool, child care centers.

The decision to merge was based on the belief that a more expansive and comprehensive operation will allow the company to provide a wider array of services, faster turnaround time and better client experience. The merger is designed to facilitate a wide range of new financial services in areas of accounting expertise in the future. The firm has attracted high-quality, committed professionals, invested in tools and resources to streamline their processes in order to become more efficient and provide a better client experience. With an exceptional track record in the accounting industry, the father and son teamed up to expand their wealth of experience, skills, and talent, throughout the east coast.

At an early age, emulating his father’s, acumen and professionalism, James developed his knowledge of and love for financial management, while working for his dad’s practice. The lessons he learned while working with his father, coupled with his love for financial management, led to other successful business ventures; ultimately leading him to establish the recent merger of “HEYWARD CPA, PLLC & A-OH Business Services.”

James E Heyward will remain Principal owner, while Oscar Heyward will operate an Executive Associate.

Heyward CPA PLLC is a Durham, North Carolina based firm on a mission to increase the success of small and mid-size companies, with a specialty in minority-owned firms, as a means of strengthening the economy and developing wealth. 

An S Corporation Loss Equals a Personal Tax Deduction

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Business owners aren’t in business to lose money. So there’s not much to like about a nonprofitable year. For a shareholder in an S corporation, however, a down year can have an upside — the corporate loss may give rise to a personal tax deduction.

Standing between an S shareholder and the loss deduction is a tricky tax computation known as “adjusted basis.” Under the tax law, a shareholder’s loss deduction is limited to the shareholder’s adjusted basis in his/her corporate stock and in any debt the company owes the shareholder.

What is adjusted basis, anyway? Essentially, it’s a figure that tracks the shareholder’s investment in the company for tax purposes. The basis number changes every year to account for any money flowing between the company and the shareholder — distributions, capital contributions, loans, and loan repayments — as well as for the shareholder’s allocated share of corporate income or loss.

If a net operating loss is anticipated for the year, S shareholders should find out whether they will have enough basis to benefit from the projected loss deduction. If not, it may be possible to increase basis by making a contribution to capital or by loaning the company money before year-end. When you give us a call today, our tax professionals can offer guidance so that the transaction will pass IRS muster.

The Financial Flipside Podcast, Episode 15: Flat Hierarchy and Luxury Couches: Startups and Startup Culture

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Facebook, Twitter, Airbnb, and Lyft all began life as startups, and their success has meant that the romance of rapid growth and multi-million dollar exits has permeated not only the world of business but almost every aspect of our daily lives. Popular business magazines draw readers in with breathless company profiles and promises that the morning routine or management style of this or that founder could transform your business too. Away from the office, television shows like Silicon Valley and Shark Tank have turned coding marathons and venture capital pitches into appointment viewing.

Where does our collective fascination leave businesses that don’t follow the startup model? Is there any real difference between startups and small businesses? What can startups and small business learn from each other? These are just some of the questions we tackle in this episode. Enjoy!

As always, we want to hear from you: tell us about your startup dreams, adventures in building a strong business culture, or even your favorite (or least favorite) entrepreneurship-entertainment. We’re on Instagram, Twitter, and Facebook @financeflipside, or you can email us at [email protected]

Mentioned on the show:

Growly.io’s history of startups
Are you running a startup or a small business? What’s the difference?
When does a business stop being a startup?
Homogeneity and diversity in tech startups
Flat vs. hierarchical business structures
5 startup founders discuss company culture
The myth of flat hierarchy in startups (opinion)
Do You Know Where Your Money Is? 3 Tips to Get Your Startup’s Finances in Order
Accounting 101 for Startups
5 reasons why small business owners shouldn’t ignore marketing
101 ways to market your small business and 40 more ideas for small businesses on a budget.
Startup writer and entrepreneur John Westerberg argues that most entrepreneurs should focus on building small businesses instead of startups

Have an S Corporation? Be sure to Give Yourself a Paycheck

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If your company is organized as an S corporation, you may wonder whether it is better to take income from the company as salary or as cash distributions. Of the two options, distributions carry the least tax cost because they are not subject to employment taxes. But that doesn’t mean you shouldn’t take a paycheck from your firm.

IRS Warning

Over the years, the IRS has made a point of warning S corporations not to attempt to avoid federal employment taxes by having corporate officer/shareholders treat their compensation as cash distributions, payments of personal expenses, or loans instead of as wages. According to the IRS, distributions must be treated as wages to the extent the amounts are reasonable compensation for services rendered to the corporation.

What Is a “Reasonable” Salary?

To avoid problems with the IRS, you should be sure to take a reasonable amount of salary if you receive any direct or indirect payments from your company. However, the tax law has no hard-and-fast guidelines regarding what is considered “reasonable.” When the issue has come up in court, the determination has been based on the facts and circumstances of the particular case. Various factors have come into play, including:

* Duties and responsibilities
* Time and effort devoted to the business
* Training and experience
* What comparable businesses pay for similar services
* Timing and manner of paying bonuses to key people
* Payments to employees who are not shareholders
* The corporation’s dividend-paying history
* Compensation agreements
* The use of a formula to determine compensation

An Exception

What about an S corporation officer who doesn’t perform any services for the corporation — or whose services are very minor? In this relatively unusual situation, assuming the officer receives no direct or indirect pay, he or she would not be considered an employee.

For more help with individual or business taxes, connect with us today. Our team can help you with all your tax issues, large and small.