By James Pruitt, Senior Staff Writer

Many small business owners brush off tax deductions that could save them and their small business large amounts of money. At the same time, all businesses need to understand their liabilities to avoid conflicts with the IRS or any other parties.

First, remember the importance of business records. Such records are convenient for your own internal purposes and play crucial roles in any drama that may come into play later. New entrepreneurs, especially, may underestimate the importance of their own private transactions. A clear and reliable records system can smooth out unforeseen problems in the future. 

Many independent businesspeople forget the need to track their own accounts in case prying eyes might zero in on any inconsistencies. Good internal records can resolve, for example, customer disputes before they escalate. Furthermore, these records can make all the difference in any future lawsuits or tax proceedings.

Second, remember that business expenses are deductible. Personal expenses, on the other hand, meld into your regular finances. However, even the best intentions can’t always prevent confusion between personal and business expenses, especially for small business owners who have chosen not to incorporate. The best solution lies with good planning. 

A list of possible business expenses may include advertising, rent, and/or mortgage expenses for office space, utilities, and employee salaries and benefits. Interest on loans may also provide a deduction. Finally, consider equipment, maintenance, and depreciation on any equipment as it wears out. 

Even relevant industry publications may provide just such a deduction. Imagine a doctor’s office without the New England Journal of Medicine. Most law offices couldn’t function without their legal digests, which are updated periodically. Any variety of other specialized professions may need these kinds of subscriptions to stay “in the know.” 

Business Expense v. Company Expense v. Personal Expenses

Your personal expenses may include your house, car, or cell phone assuming use only in a personal rather than business context. However, such assets may overlap with business expenses in some cases. Assuming some sort of overlap, generally, consider the percentage you use for business or personal reasons. In such cases, the percent of the value of maintenance of the asset becomes most relevant on Tax Day. Here, your accurate business records may come in handy.

Unfortunately, some other ongoing company expenses may not provide a tax break, even when separate from personal expenses. For example, if your company does any political lobbying, your company must shoulder the whole cost, taxation, and all. The same goes for fines and penalties. Ideally, a CPA can help sort out these technicalities.

Formal incorporation can help set these boundaries for you. However, some types of small businesses may see no need for this level of formality. 

Smaller businesses are more likely to utilize personal resources along with deductible business expenses. During tax season, itemizing these deductions may present greater challenges than the black-and-white restrictions facing more strictly incorporated companies, which must separate their affairs from their owners like oil and water.

Finally, don’t be afraid to seek professional help. Many business owners do handle their own expense records, but these records can become complicated very quickly.  A good accountant can prevent your worst headaches later. The IRS updates its regulations frequently, and a CPA may have more experience than others in more complex taxation matters.

In short, prepare, prepare, prepare. One of the best ways to prepare is to develop a good records system. Further down the road, an entrepreneur’s handling of expenses determines the path around many obstacles that fate may put in your path down the line.

VAMBOA, the Veterans and Military Business Owners Association hope that this article has not only been valuable but provided some unique perspective.  We work hard to bring you important, positive, helpful, and timely information and are the “go-to” online venue for Veteran and Military Business Owners.  VAMBOA is a non-profit trade association.   We do not charge members any dues or fees and members can also use our seal on their collateral and website.   If you are not yet a member, you can register here:  https://vamboa.org/member-registration/

We also invite you to check us out on social media too.

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Do not forget that VAMBOA members receive significant discounts on technology needs.   Check them out here: https://vamboa.org/dell-technologies/ 

By Debbie Gregory.

Every small business wants to minimize their taxes and maximize their deductions. However, many small business owners miss out on a tax code that can benefit them, U.S. Tax Code Section 179.

According to a recent survey conducted by the National Federation of Independent Business (NFIB), Section 179 has helped small business growth and prosper:

• 35% of current small business owners are unaware that they could be eligible for a deduction under Section 179.
• 78% of small businesses used Section 179 to offset their tax expenses last year.
• 82% of small businesses purchased equipment or software last year (cars, trucks, office furniture, machinery, etc.).
• The top three purchases made were computers (51%), vehicles (44%) and office furniture (31%).
• 75% made qualifying purchases of less than $50,000.

What is Section 179?

Section 179 refers to property depreciation deductions a business can claim. It does not increase your overall deduction but it can give you the option to take the deduction more quickly. In other words, you can declare the entire deduction in a single year instead of spreading it over many years.

An asset’s useful life depreciation deduction can be stretched out to a maximum of 39 years but most are taken over a 5 year period. Under Section 179, you can deduct the entire expense in the first year.

This can be especially helpful if the company needs the asset to grow and the item purchased was quite expensive up front. The tax impact can help ease the burden and help the company grow. Currently, the deduction is limited to $1 million and a total investment limit of $2.5 million.

How Can This Help Your Business?

Section 179 can be used for most tangible assets purchased to run your business. This tax break is intended to make it more affordable for small businesses to buy expensive equipment including:

• Machinery
• Computers
• Computer software
• Other business equipment
• Company vehicles
• Office furniture
• Capital investments
• Property
• And more

While a business has always been able to deduct expenses of this nature, they could only deduct a portion of the asset’s value every year. With Section 179 the full value can be deducted in the same year that the purchase was made.

Where Can I Obtain More Information About Section 179?

If you have any questions about Section 179, visit the official Section 179 informational website at http://www.section179.org/. If you are looking to learn about other potential tax breaks for you or your business, you can always visit the IRS’ website at https://www.irs.gov/ to learn more.

Our Advice

The US tax rules are constantly changing, it is always best to pay attention to taxes all year long and not only at tax time.  Keep alert for changes in tax laws and always consult a professional for help.

Disclaimer

We are not tax professionals and we strongly recommend that before you take any actions, that you consult your own licensed tax professional. It is always best to seek professional assistance if you have questions about taxes or their s on your specific business. Working with a professional also provides you better opportunities to find and take advantage of legitimate tax breaks and opportunities to lower the amount of taxes that you pay.

By Debbie Gregory.

In the first part of this article, we discussed smart tax deductions, carryover deductions, changing your business structure, keeping a close eye on your Adjusted Gross Income (AGI), as well as tax-free ways to get money out of your business.

This second part will covert five more ways to lower your business taxes including abandoning rather than selling property, accountable plans for your employees, fringe benefits, retirement plans, and smart year-end tax planning.

More Ways to Lower Your Taxes:

6.) Abandon Property Instead of Selling It:

If you own a property that has no value to the business, you may wish to consider abandoning it rather than selling it for a nominal amount. Doing so could allow your business to take a loss on the property, that is fully deductible, rather than treating the loss as a capital loss, which is subject to limitations.

7.) Use Accountable Plans:

Accountable Plans allow you to reimburse your employees for such items as travel, entertainment, tools, or other costs and then deduct the expenses but not report the reimbursements as income to employees. This can potentially save your company money in employment taxes which will overall lower your business taxable income..

8.) Take Advantage of Fringe Benefits:

Paying employees more will increase your costs your business employment tax. However, if the business pays for certain fringe benefits for employees, these taxes can be avoided, which reduces your overall taxable income.

These types of tax-exempt benefits include:

• Educational assistance
• Transportation benefits
• Meals provided for employee convenience
• Health benefits
• Long-term care insurance
• Group term life insurance
• Disability insurance
• Dependent care assistance

9.) Shelter Profits in Retirement Plans:

A 401(k) or a similar tax-deferred retirement plan is easy to setup, you don’t pay taxes on the contributions, and the savings grow on a tax-deferred basis. These types of plans not only allow you to save money on taxes, they help incentivize your employees, and it also shifts most or all of the cost of savings to the employees while giving them choice and flexibility in planning for retirement, instead of a defined benefit pension plan where more of the burdens are on the employer. Employer contributions to an employee retirement plan are also tax deductible and you may qualify for a tax credit for setting up your employee retirement plan in the first place.

10.) Smart Year-End Tax Planning:

Planning for your taxes should be a year-round activity for a business. You can achieve dramatic savings by taking certain actions towards the end of the year including:

• Delaying billing for work done late in the year so that payment will be received in the following year
• Purchase fixed assets and claim a portion of depreciation immediately
• Revalue the assets that are already listed on your books for their depreciation value
• If you have a customer who is not paying, you might be able to write this off as an uncollected debt, also known as a Bad Debt Deduction
• Make sure to have your taxes filed and submitted on time

DISCLAIMER: We have done a lot of research on all of the ways covered in this two part series to bring to your attention that may save taxes for your small business, but we are not professionals.  We strongly recommend that before you take any actions, that you consult your own licensed tax professional. It is always best to seek professional assistance if you have questions about taxes or their implication on your specific business. Working with a professional also provides you better opportunities to find and take advantage of legitimate tax breaks and opportunities to lower the amount of taxes that you pay.

By Debbie Gregory.

Every year tax season comes around filled with the same major questions including:

• How much will I have to pay?
• Why do I have to pay so much?
• How can I reduce my tax liability?

No one wants to pay one dollar more in taxes than necessary.  Finding legitimate ways to lower your taxable income is something that is very important to your business. A lot of business owners end up paying more than they should due to the simple fact that they missed out on certain deductions. However, if you consider that the U.S. tax code is approximately 70,000 pages long, it’s understandable why small business owners have challenges.

Ways to Save Paying Taxes for Small Businesses:

1.) Make Smarter Tax Deduction Choices:

Being strategic about your business expenditures can help lower your taxable income. For example, an established company purchasing a large dollar piece of equipment can deduct the entire cost of acquiring the machinery or equipment. However, a start-up would be better off spreading out the value of the purchases across your future tax years instead of deducting the full purchase price all at once.

Other deductions to consider:

• Vehicle expenses (based on actual costs)
• The IRS mileage allowance(currently 58 cents per mile)
• Home office expenses (based on actual costs), or you can use the IRS simplified rate (which is currently $5.00 per square foot up to 300 square feet of space)
• Claiming disaster losses on prior year returns rather than on the return for the year in which the disaster occurs
• Your business insurance expenses

2.) Carryover Deductions:

Certain deductions and credits have limitations that can prevent you from using them fully in the current year, but carryover the remaining amount to future years. Keep track of any carryovers so that you won’t forget to use them in future years.

Examples of these include:

• Net operating losses (limited to 80% of taxable income)
• Home office deduction
• General business credits
• Capital losses
• Charitable contribution deductions

3.) Change your Business Structure:

If you are currently doing business as a sole proprietor or partnership, it may be time to look at a new business structure. Many small businesses choose to do business as an LLC (Limited Liability Company), or a “pass-through entity”, since it may offer more flexibility on how income can be taxed.

4.) Adjusted Gross Income (AGI):

A number of tax breaks, limitations, and additional taxes are based off of the Adjusted Gross Income (AGI), or the Modified Adjusted Gross Income (MAGI), which for some is the same as the AGI. Keep a close eye on taxes taken out of the income, some may not be relevant to your business at all.

5.) Use Tax-Free Ways to Extract Income from Your Business:

Items such as your salary, bonuses, and any distributions of business profits are taxable.   There are other ways that may allow you to possibly benefit from your business’s success without necessarily triggering tax liability.

Items such as:

• Tax-free fringe benefits, including items such items as medical coverage or retirement plans
• Loans made to you by the business on a no or low-interest basis

Please stay tuned for Part 2 of this series with five more ways for small businesses to reduce or save on taxes.

By Debbie Gregory.

It is amazing that in a few short weeks, 2019 will be over and we a new year will begin. VAMBOA, the Veterans and Military Business Owners Association wishes all of our members, sponsors, colleagues and associates a happy, healthy and prosperous holiday season and new year.

We realize that December can be the peak of the selling season for so many small businesses. In addition, there are many other responsibilities and events with family and friends so time is at a premium.

Below are a few tips and tasks for ending your business year and things you should do in December that will position you right for 2020 as well as helping you to obtain the maximum tax benefits and comply with applicable laws.

• Charitable Donations – This is the time to make them and it also the season for giving. If you have a pass-through entity such as an “S” corporation, you will benefit on your personal income tax too if you itemize deductions.
• Check-in with your Accountant – This is an excellent time (if you have not yet done so) to discuss your taxes for 2019 to make sure you are doing all you can to mitigate the final number and plan ahead for 2020. Additionally, the final payment of 2019 estimated taxes is due January 20, 2020 so make sure you avoid any penalties for late or insufficient payments to cover them.
• Check-out Legal Changes – There are all types of new laws on the horizon on the federal, state and local levels. These might include but not be limited to the new federal overtime laws. Your state minimum wage rate often changes at the beginning of new year and of course there are always various new income tax laws as well as new laws on defining an employee from an independent contractor.
• Corporate Board Meeting – The end of the year is a good time to hold it if you have not done so already. Many states require corporations even those with a sole owner to do so and elect officers and directors as well as to take specific actions.
• Compensation Plans – This is the time to plan to compensation plans employees and set them for 2020. You should keep in mind when doing this the cost of employment taxes such as social security and Medicare which will cost your company more in FICA with the maximum going up to $137,700.
• Benefit Programs – This is the time to determine your benefits for employees such as medical plans, retirement plans and other benefits. Do so by keeping in mind some of the new 2020 rules that set new limits on 401(k) contributions and other retirement plans as well as health reimbursement for medical coverage
• Employee Bonuses – This is the time for your year-end bonuses especially if 2019 has been a banner year. You will want to share the wealth with employees who helped make 2019 successful for your company as well as yourself if you are a shareholder-employee company. Keep in mind the cost of employment taxes too.
• Inventory – This is the time with the end of the holiday season to review your inventory carefully. You should take a physical inventory and review items that you want to get rid of via a big sale and donate to charity or discard and write them off.
• End of Year Purchases – This is often an excellent time to upgrade your equipment, computer systems, etc. By purchasing these items at the end of the year, it will provide you a write-off on your taxes and prepare you with what you need to begin 2020
• New Date – It is a new year and you need to update anything with a date including your website, your website copyright and any collateral to reflect that it is 2020.

Happy New Year!