What Are Capital Expenses?
Posted by admin on Nov 30, 2007
Those consider capital expenses are wondering, how do I know if something falls under a capital expense or a current expense?
It is a perplexing consideration. Under tax law, anything that will help you to generate a business income over several years is considered a capital expense. For example, if you invest in a copier for the office, this will work for you for several years. Therefore, it is considered an expense that must be deducted over several years time. The IRS rules define how long this period will be. It could be three years, five years or seven years depending on the item.
But, do take into consideration Section 179 which now allows some items considered to be capital expenses to be deducted as current expenses. This includes things like computer purchases and office furniture, depending on the situation.
Organization The Key To Successfully Avoiding The Tax Man
Posted by admin on Nov 28, 2007
Since most people that are audited because of missing records, not because of dishonesty, the key to avoiding the tax man is to have organized, efficient systems to keep your business income in check.
Here’s a solution for you. Separate all of your documentation by categories. You may want to consider categories for advertising, travel, auto expenses, utilities, rent or mortgage payments, professional fees, etc. Keep all receipts and canceled checks in the appropriate folder.
The burden of proof is on you. What’s more, small businesses are more likely to be audited three times as much as individuals. Their target is often reported business expenses such as your travel expenses and your entertainment expenses. This should not be a problem for you if you have all of your expenses documented in an organized manner.
Stay organized year round and you will see the process is very straightforward and even simple.
Ready To Start That Small Business?
Posted by admin on Nov 23, 2007
Starting your own small business is an amazing idea. Unfortunately, Big Brother is looking over your shoulder as you do it. Those that are considering starting their own business need to know what to do to keep the IRS off their backs.
There are many things that you can and should do, but by far the most important is keeping records of your business. Poor records are the number one reason that people fail to provide accurate tax filings. While you should be honest and upfront about the business to the IRS from the beginning, most people make mistakes from sheer “forgetting” or lack of organization.
Also, if you do hire a professional to manage your books, do supervise them. It is ultimately your responsibility to file accurate tax reports. The good news is that it does not have to be difficult to do.
Part Time Work At Home Equals Office Deduction: Sometimes!
Posted by admin on Nov 21, 2007
If you work within your home only part time, you may not believe that you can take the home office tax deduction. Yet, this may not be the case. This tax law allows for the expenses of your office to be considered a business expense. Under this law, a portion of your mortgage, your home insurance, your utilities and other costs associated with “running” your office may be deductible.
This is not true, though, for those that use the office space for both business and work. And, it must be used regularly. For those that work part time from home, as long as the location is solely used for business and is used on a regular basis, then it may constitute a deduction.
The requirements for this deduction are very strict. Do take the time to accurately calculate these costs.
Capital Equipment And Section 179: Over Time or All At Once?
Posted by admin on Nov 18, 2007
You are upgrading the computer system in your business and to do so you need to invest in a variety of new computers. You will use them solely for your business and therefore they qualify as deductible expenses. But, do you deduct them all at one time or do you need to consider it capital equipment and therefore deduct over several years?
Section 170 now allows most tangible personal property that you purchase for your business to be deducted all at one time, in the year that you purchase. Capital equipment is considered equipment that has a life span of over a year, but computer equipment, office furniture and other equipment is an exception.
There are limits as to how much this equipment can cost, defined on a per year basis. You cannot use Section 179 for land, intangible assets, air conditioning and heating units or buildings and inventory.
The Big Question: Is It A Deductible Expense Or Nor?
Posted by admin on Nov 14, 2007
The definition of a deduction in business tax scenarios is anything that is considered “ordinary, necessary and reasonable.” It must help you to earn your business income. It must also be “helpful and appropriate” for your business. When considering items for your business, then, consider whether they are helpful in drawing a profit for your business. Your computer in your home office likely is whereas that same computer in your child’s bedroom is not.
There are some things that are prohibited by law from being considered a deduction. This includes brides, traffic tickets, your clothing even if it is considered for business attire (uniforms are a different case), and your home’s telephone line.
The item should be used solely for your business benefit. Sharing that same computer in your home office with your child still does not make it a business expense.
Managing Entertainment Business Expenses Correctly
Posted by admin on Nov 12, 2007
The key to staying out of the IRS’s grasp and still using your entertainment business expenses to your best interests is to be organized about them. When the IRS begins to look at the expenses related to your business that you have written off, entertainment is one of the most likely targets they will hit on. Many write off expenses here that are not legit.
Remember that you can write off 50 percent of entertainment costs for your businesses in terms of impressing the client or other such activities. Yet, the burden of proof is on you. This means that if you take them out, you need to walk home with a receipt in hand. And, you must show that it was somehow related to your business. The best way to do this is to keep a business guest list and records of when, where and why you went out to dinner. Then, include the relationship with the person. This way, you clearly show why this is a legitimate business expense.
Defining Independent Contractors Versus Employees
Posted by admin on Nov 10, 2007
The definition of an employee, according the IRS, is someone that you tell what you do, how to do it and monitor their work. If this is how you treat those that you hire, then they may be considered employees, not independent contractors. Independent contractors are actually running their own business and they should be offering their services to various other clients.
In the IRS’s eyes, someone that is doing your freelance work for you, for example, and probably your competitions, is an independent contractor.
It is essential that this classification is defined correctly. While you may save money on reporting their income as an employee at first, the costly fines will cause huge problems later including paying back taxes, interest and various penalties. Be sure to define independent contractors and employees correctly. If you are unsure about a specific situation it warrants a call to your tax professional.
Planning To Do Your Taxes Yourself? Are You Sure?
Posted by admin on Nov 7, 2007
Although personal income tax is fairly straightforward and simple, that of doing your own small business tax may be a bit more…challenging. If you do want to keep your own tax books and file your taxes at tax time, take this into consideration.
The best way to do so would be to invest in a quality computer program that will do the work for you. Most programs also offer a companion tax program which makes it very easy to get the work done. It also helps to have an experienced professional at least help you to set up the process of reporting taxes and to check in on you over time. This will help you to avoid costly mistakes.
Most small business owners start out with doing their own taxes and then, as they make a larger profit, will hire a bookkeeper. Remember that your tax professional’s fees, along with your bookkeepers can be deductible on your taxes.
Don’t Guess On The Mileage On Your Taxes
Posted by admin on Nov 2, 2007
You start out the year planning to keep a notebook in your car to write down all of your mileage when you visit clients or have to head to that important meeting. By February, you’ve been too busy to keep up with it. While the tax code allows for business related driving to be tax deductible, the key is to have accurate documentation. Record the date, the amount of miles traveled; the tolls you paid, the parking costs you paid as well as the reason for the trip.
To use the most straightforward method, do this. First, add up all of the mileage, and then add in the costs involved just as tolls and calculate the cost. Your mileage is calculated based on a set amount per mile.
There are other methods to calculation that your tax professional can help with. Leases, purchasing a new car and even having your business out of your home, all offer deduction potential.