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15 Non-Deductible Business Expenses

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By Debbie Gregory.

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New changes to the US tax laws have made certain expenses no longer deductible.

 

Here is a quick list of 15 things you cannot write off on your taxes:

1.) Entertainment

Companies used to be able to deduct the costs of entertaining clients or employees, this is no longer the case. Now, you may not deduct any portion of items such as tickets to the theater or sporting events is deductible.

 

2.) Meals

Meals for clients and employees, such as entertainment, used to be deductible on business taxes. Now, only 50% is deductible and even that is only allowable in specific cases. There are still a few exceptions, such as company picnics or break room snacks, where you can deduct the entire cost.

 

3.) Commuting

No matter what form of transportation you use to get back and forth to work or how lengthy or difficult it is to get to your business and home again, you are not permitted to write off the costs of commuting.

 

4.) Work Clothing

In the past, purchases of business appropriate attire were deductible. Now, only clothing not suitable for any possible street use, such as company specific uniforms, hardhats, etc., can be deducted.

 

5.) Gifts

The deduction for giving gifts to business associates, vendors, customers, etc. is now capped at $25.00 per gift/person, even if it makes good business sense, in certain situations, to give a more expensive gift.

 

6.) Medicare Taxes

If your income is high enough, you cannot deduct the 0.9% additional Medicare tax paid on net earnings from self-employment or employee wages and the 3.8% net investment income tax paid on income from any business investments.

 

7.) Club Dues

Participating in a golf or tennis club, social club, or fitness center may be a great way for you to meet and network with possible clients and customers. However, the dues you pay to be a member aren’t deductible.

 

8.) Exploratory Costs

A lot of people spend money researching business opportunities before starting their new company. This money is no longer tax-deductible. Though, once you start the business, those exploratory expenses can be treated as start-up costs and then can be deducted in the first year of business.

 

9.) Property Purchases

Legal fees paid to assist with property purchases cannot be deducted on their own. Instead, these fees are added to the cost basis of the property. A portion of the fees can potentially be recovered through depreciation.

 

10.) Fines and Penalties

Generally, government-imposed fines and penalties are nondeductible, regardless of the amount or reason for the fine.

 

11.) Excess Business Losses

Excess business losses for non-corporate taxpayers are treated as a net operating loss carryover and cannot be deducted.

 

12.) Interest on Tax Underpayments

Sole proprietors and owners of pass-through entities (non-corporate taxpayers) that pay interest on tax underpayments cannot deduct them. The interest is viewed as personal interest even if it relates to business income.

 

13.) Interest Expense Payments

If your annual gross receipts for the three prior years exceeds $25 million dollars, you cannot deduct any of your interest expenses on borrowing.

 

14.) Certain Employee Expenses

Reimbursements for employees’ commuting costs or moving expenses are not deductible.

 

15.) Net Operating Loss Carrybacks

Only farmers can deduct carrybacks. All other business entities are only allowed carryforwards and they can only be used to offset 80% of the taxable income.

 

All these tax law changes can affect your bottom line. Working with a CPA or a good tax or accounting service can help you better adapt to these changes and offset some of their potential impact. Always consult with professionals if you have questions or need guidance with any federal, state, or local law changes and tax issues.

 

10 Payroll Changes for 2019

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By Debbie Gregory.

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Due to recent changes in the US tax and employment laws, your payroll is likely to look very different in 2019 than it did in 2018.

 

Here are ten reasons why:

1.) New Employment Laws

For 2019 a few states added new employment laws. For example, Oregon prohibits employers from paying employees different amounts for the same or comparable work. In California, employers with five or more employees now must provide sexual harassment training. Both Oregon and Washington increased their unemployment base tax amounts.  Check with your state for any new laws that may impact your business.

 

2.) New Minimum Wage Rules

Though the federal minimum wage is $11.10 per hour beginning in 2019, approximately twenty states have increased their minimum wage. State or local rates apply if they are higher than the federal rate.

 

3.) Unemployment Tax Changes

A few states made changes to their unemployment tax rate, laws, and claims. Check with your state for any possible changes.

 

4.) Workers Compensation

This is another area where you will need to check with the specific state you are in – some states raised premiums, some lowered them, and others made no changes.

 

5.) New Employment Posters

The US Department of Labor and OSHA require businesses with a certain number of employees to visibly display specific information in the business about minimum wage rates, paid leave, and more. Check their websites for more information and how to obtain free copies of these posters for your business.

US D.O.L. : https://www.dol.gov/whd/regs/compliance/posters/flsa.htm

OSHA : https://www.osha.gov/Publications/workplace_poster_page.html

 

6.) New Social Security Wage Base

The Social Security Tax base limit was raised from $128,400 in 2018 to $132,000 in 2019. The employer and the employee each pay 6.2% of Social Security tax up to the wage base limit.

 

7.) Employee Transportation Benefits

If you offer your employees transportation benefits such as free parking, transit passes, or carpooling, you can no longer deduct this benefit on your business taxes at the end of the year. Instead you must claim these fees as part of your lease payments. See the guide from the IRS on this topic here :  https://www.irs.gov/newsroom/irs-issues-guidance-for-determining-nondeductible-amount-of-parking-fringe-expenses-and-unrelated-business-taxable-income-provides-penalty-relief-to-tax-exempt-organizations

 

8.) Medical Coverage Options

The employer mandate for companies with 50 or more full-time employees is still in place for 2019 though there have been some changes to other coverage options. Health savings account limits have increased as well as the contribution amounts for qualified small employer health reimbursement arrangements (QSEHRAs).  Additionally, there are a lot more options for plans in the group market through trade associations, chambers of commerce and more.

 

9.) FSA Limits

Flexible spending account limits have increased for 2019. Please check with the IRS for more information : https://www.irs.gov/pub/irs-drop/rp-18-57.pdf, or a qualified professional.

 

10.) Employee Elective Deferrals

If your business offers a retirement plan with salary reduction contributions (employee elective deferrals), the limits for 2019 have changed. For more information, please refer to documentation from the IRS : https://www.irs.gov/pub/irs-drop/n-18-83.pdf

 

 

Keeping up with all the law changes that impact your payroll can be quite daunting. Working with a CPA or a good payroll service can help you better adapt to these changes and incorporate them at the appropriate times. Always consult with professionals if you have questions or need guidance with any federal, state, or local law changes.

The Tax Cuts and Jobs Act & Small Business Taxes

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By Debbie Gregory.

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Taxes aren’t a fun to deal but incredibly important.  For most businesses, annual tax expenses are often their largest outlay of money annually.  These costs exceed rent or mortgage payments, vehicle expenses, and marketing costs. The recent Tax Cuts and Jobs Act drastically changed a lot of our tax laws, specifically ones for businesses. Below we outline some of the changes and provide you some advice.  Always check everything with your tax professional before taking action.

 

 

New Laws, New Rules

The recent Tax Cuts and Jobs Act reduced the tax rates for some small businesses. C Corporations and S Corporations now have a flat tax rate on top of reduced tax rates for individuals. This act also added an array of deductions or credits for offering health insurance, retirement plan contributions, and continued wages during family and medical leave to your employees.

 

Some other deductions were eliminated or dramatically changed. Prior to the Tax Cuts and Jobs Act, businesses were allowed to deduct the cost of entertainment for their clients. Now, regardless of how relevant, you cannot deduct entertainment and you can only deduct 50% of the cost of any food served (prior to the law you could deduct 100% of all entertainment and food).

 

 

Get A Pro

Did you know that new federal, state, and local tax rules occur each year? Not keeping up with all of the changes can really hurt your business. Most small businesses use paid tax professionals to complete their tax returns each year due to the complexity of our tax laws. Unfortunately, given the complexity of the changes by the Tax Cuts and Jobs Act, most paid professionals have been slowly raising their prices because of the added time now needed to complete the new forms and schedules.

 

Preparing for tax time and actually doing your taxes is a huge drain on a business’s resources. Even if your business uses a professional tax person, there are still a lot of things that must be taken care of by the business before the professional steps in; things like record keeping, meeting and talking with the tax professional, paying for services, checking past returns, and more.

 

 

Do Not Lie

Even if your business uses a tax professional, mistakes can still happen which can cost you additional in interest or penalties. You may also be tempted to try to outsmart the IRS, but their computer systems are state of the art and they catch conflicts in returns often.  Honesty is the best policy.

 

 

Our Advice

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

 

 

Need more assistance?

The IRS has a lot of information on their website : IRS’s Small Business and Self-Employed Center.

Commonly Overlooked Business Deductions

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By Debbie Gregory.

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Since tax laws are constantly changing, it can be quite challenging for a non-tax professional to stay on top of every change and every possible deduction that is out there. Therefore, many deductions are totally overlooked by most people.

 

Here are ten of the most common business deductions that are usually forgotten (or simply unknown) when tax time comes around:

 

1.) Depreciation

It is always a good idea to look over the prior year’s taxes to make certain that you are properly writing off any depreciation of business property. For more information on depreciation please read the IRS publication here : https://www.irs.gov/pub/irs-pdf/p946.pdf

 

2.) Bad Debt

If you or your business loaned money to someone and you have not been repaid you may be able to deduct that loss from your taxes.

 

3.) Cancellations

Not everything goes according to plan and often failed plans come with hefty fees. This category refers to things like a business trip that you had booked that you were forced to reschedule. The fees from the airline or hotel that you lost can be deducted.

 

4.) Bank Fees

If you pay any fees to banks for your business checking account, ordering checks, ATM fees, or any other banking fees you can deduct those fees.

 

5.) Accounting Fees

If you pay a CPA or tax professional to prepare your taxes every year, that fee you pay to them is deductible on your next year’s taxes. Make sure to check the prior year and get that deductible. Please check with your tax professional as there have been some changes regarding this deduction.

 

6.) Carryover

Taxes from prior years can occasionally provide you deductions in the current tax year. Carryovers can include items such as capital losses, investment interest, charitable contributions, home office deductions, operating losses, and more. It is always a good idea to re-check prior years when you sit down to do your taxes.

 

7.) Travel Expenses

Most people know that business travel expenses like car rentals and airfare are all deductible but they often overlook smaller fees that can really add up. Fees such as baggage fees, toll roads, or optional vehicle insurance.

 

8.) Home Office

Roughly half of all businesses in the US report as home-based businesses and in response, the IRS has created a standard deduction for home office use. If you qualify, don’t forget to grab this deduction. For more on home office deductions please visit the IRS’ website here : https://www.irs.gov/businesses/small-businesses-self-employed/simplified-option-for-home-office-deduction

 

9.) Startup Costs

If you started your business during the year you are filing your taxes, you may qualify for a number of deductions for costs incurred before you even opened your doors. These costs are treated like capital expenditures and are added as an investment in the business. In your first business year, you can deduct up to $5,000 and any remaining costs over that amount are then amortized (up to 15 years).

 

10.) Miscellaneous Expenses

There are a whole lot of smaller expenses that you can and should deduct on your taxes related to business. Items such as grabbing a cup of coffee with a customer, sending a vendor a thank you gift, and business or trade magazines. It is best to keep a good log of these smaller expenses, along with their receipts. For more on these types of expenses and what you can deduct please take a few minutes to look over the IRS’ web page on this topic here : https://www.irs.gov/businesses/small-businesses-self-employed/what-kind-of-records-should-i-keep

 

If you have any questions, concerns, or a desire to learn about more potential tax breaks for you or your business, it is best to sit down with a certified CPA or tax advisor. You can also go to the IRS’ website (https://www.irs.gov/) at anytime and learn more.

Which Business Entity Is Right For My Business?

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By Debbie Gregory.

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Whether you are just starting a business or thinking of changing your business structure, a common first step is comparing the types of business structures. While a Limited Liability Company, a C Corporation and an S Corporation share some characteristics, they also have distinct differences. You should spend the time getting familiar with each type before deciding which one might be right for you.

Most small businesses are usually either a sole proprietorship or simple partnership. In both of these cases, the business taxes are part of the individual’s taxes. There are three major types of business entities that classify the business as its own “person”– a C Corporation, an S Corporation, and an LLC (Limited Liability Company).

Some business and certain tax rules are unique to the type of entity that you choose for your business. Read below for more information on each and always check with your accountant.

 

C Corporations

A C Corporation is taxed at a flat 21% regardless of how much business they conduct or money they make. Additionally, C Corporations help create personal liability protection for the owners of the business. They are designated to the public with extensions such as inc, corp, or ltd.

This type of corporation can issue stocks that when held for more than five years, they entitle the seller to tax-free gains. Raising capital is also very easy for a C Corporation as compared to the other business types because they issue stock in exchange for the funds raised.

The major downside to a C Corporation is double taxation. All business earnings are taxed and paid for by the business however, the income received by the business owners is not deductible and they must claim and pay income taxes on the salary they take from the business on their personal taxes.

C Corporations are separate taxpaying entities and file their own very specific tax forms every year to the IRS.   These C Corporations can actually choose to be taxed as an S Corporation to help offset the double taxation by utilizing income pass-through to the owners, so they report their share on their personal taxes. This way the business and the business owners pay between 10 and 37% depending on the individual.

 

S Corporations

S Corporations also help create personal liability protection for the owners of the business. They are designated to the public with extensions such as inc, corp, or ltd – the same as C Corporations. An S Corporation also has the ability to allow up to 20% total business income deductions.

S Corporations are required by law to adopt and maintain certain formalities and they have extensive rules in place for how the business can be managed. They include by-laws, operating agreements, issuing stocks, membership shares, holding director and shareholder meetings, keeping meeting minutes and other extensive records.

 

LLC (Limited Liability Company)

An LLC has many advantages for business owners. As an LLC, you can elect to be taxed at the flat C Corporation rate, which can be very beneficial if the business owner is not qualified to use certain income deductions. This type of business entity also helps you avoid the double taxation issue of the C Corporation as the LLC is taxed a lot more like a sole proprietorship. This type of business also provides you good liability protection and some pass-through taxation, just like the C and S Corporations.

Another benefit of the LLC structure to a startup is that once you have set it up, there is not any need for continual maintenance. It is also easy to add new partners or sell interest in the entity to someone else.   An LLC can have an unlimited number of members whereas S or C Corporations can only have a maximum of 100.

The downside to an LLC is that there is a minimum tax regardless of how much business you conduct. If you make zero dollars or ten thousand dollars you still owe that minimum tax.

 

The choice of business entity is a complex matter and you need to take into consideration both state and federal tax matters as well as any other issues and non-tax considerations (personal liability protection, raising capital, etc.). As with any major changes to the overall structure of your business, as well as the tax implications of any changes, we highly recommend consulting a tax, financial, and/or business professional before making any changes.

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