New Tax Law Allows Business Owners To Claim Over $2 Million in Deductibles
There is an old adage that says, “Don’t mess with the IRS.” But last year Congress signed a new law that allows citizens to mess with the IRS without dire consequences.
Did you know a tax loophole allows Small Business owners to hire relatives like a son or daughter, and claim deductions as long as the owner’s spouse is a co-owner? Or did you know if you use your cell phone for business the IRS allows you to deduct 30 percent off your bill?
And did you know a new law that is part of the existing (Section 179 IRS CODE) … allows a business owner to write off an additional $2 million dollars in deductibles if the business owner finances their work-related equipment and even software for computers? [cpapracticeadvisor.com]
And let’s not forget our health bills. If you pay your own health insurance as owner of any size business or if you are individually self-employed, you qualify for a 100 percent deductible. These and other tax-deductible benefits are available when you file your taxes this year in 2016.
As the April 15th deadline approaches for Americans to file taxes with the IRS (Internal Revenue Service) … NewsBlaze Reporter Clarence Walker researched IRS Tax Code and interviewed Tax Experts who provide valuable tax tips to the Business Industry in order to help Small Business owners decipher important information that they need to know to benefit from tax deductions when filing 2015 taxes in 2016.
This article focuses on a variety of business-related issues like recent tax changes, tax break extensions, percentage of payments due to IRS, avoiding IRS pitfalls, and how to deal with the impact upon Small Businesses by Obamacare (Affordable Care Act) abbreviated ACA.
“Under the Affordable Care Act … everyone has to have health insurance,” Kay Bell said in a NewsBlaze interview. Bell is a Tax Expert for Bankrate.com.
“If you’re self-employed and pay health insurance premiums, they are 100 percent deductible,” Bell explained to NewsBlaze.
Bell also added there are limits.
“The main one is that the health care deductible can’t be more than your business net profit.”
“But if you hire your spouse and pay for their medical insurance, that amount is deductible, too,” according to Bell.
Another expert makes everything plain and simple.
“If it’s for your business it’s deductible,” CPA Gail Rosen, said in a phone interview with NewsBlaze.
Rosen ticked off a few deductibles.
“For a car you must keep track of your mileage, and keep a written log because once you pick a method (while using a vehicle for business) … you have to stick with it,” Rosen explained to NewsBlaze.
CPA Rosen included deductibles such as giving gifts, office equipment and office supplies.
Tax Specialists insist that Small Businesses must also take advantage of two very important extended tax breaks offered by the IRS. For example, under Section 179 IRS Bonus Depreciation Code, this particular rule allows a business to deduct the amount paid for purchase of software and equipment that were financed or leased. These benefits fall under Section 179 Protecting Americans From Tax Hikes Act, signed into law on December 18, 2015. This bill expanded the Section 179 deduction limit to $500,000.00.
For example, Businesses exceeding $2 million dollars of purchased equipment qualify for dollar-for-dollar deductions under the prohibited Tax Hike Act. Included with the Tax Hike Act is the 50 percent Bonus Depreciation that extends through 2019.
Businesses of all sizes are allowed to Depreciate 50 percent of the cost of purchased equipment put in service during the years starting in December 2015 up to December 2017. Then the bonus Depreciation will phase down to 40 percent in 2018, and thereafter 30 percent in 2019. (Be sure to consult with your CPA or tax advisor).
Kay Bell adds another benefit.
“As part of the federal spending bill, the Work Opportunity Tax Credit program was extended for five years, through 2019. Under this credit,” Bell said, “a business that hires individuals in specific targeted groups, notably veterans, can claim a business credit.” (For More Information Go To: www.doleta.gov/business/incentives)
10 Primary Deductibles For Small Business Owners
Here Are 10 Primary Deductibles For Small Business Owners. A Link to Other Tax Sources For Businesses is Listed After the 10th Deductible That is Listed At the End Of This Article.
(1) Office Supplies: Small Business owners can deduct purchased business-related office supplies. Make sure you keep each receipt because tidbit expenditures can offset your taxable business income.
(2) Furniture: Furniture office acquisitions provide business owners a smart option. A Tax Specialist broke the figures down to NewsBlaze this way: Deduct 100 percent of the cost during the year the furniture was purchased or deduct partial expenses over seven years, which is a strategy called Depreciation.
To make the above scenario work, an entrepreneur can use the IRS Deduction Code 179. What does this mean? Recent changes made within Tax Law code have made Depreciation highly valuable. Therefore if a business owner decides to Depreciate file cabinets and desks, the law forbids you to split the cost into equal portions over the Depreciation term, which allows your CPA or Tax Accountant to use IRS chart to make separate calculations each year. Go to IRS Form 4562 to get an in-depth clarification.
(3) Software & Subscriptions: Section 179 IRS Code allows additional tax breaks for these kinds of business expenses. Prior to Section 179 being passed into official law, business owners were instructed to Depreciate the cost of computer software over three years. A key benefit here is the fact that Section 179 allows any purchased software to be deducted as an expense during each year (instead of every three years).
(4) Subscriptions: Subscriptions to magazines or other literature related to a business owner’s industry can still be deductible on your 2015 tax form.
(5) Child Labor: Depending how much you pay your children to work at your business and how ownership of your business is structured, you may avoid income taxes. Tax Specialists point out there is no Social Security Tax when you hire relatives aged 17 or younger. Tax law allows the owner to deduct a relative’s salary as a business expense. An entrepreneur is only afforded this benefit if a company operate as a sole proprietary or your spouse is your business partner. And yourself and spouse have to be the only two owners.
There are disadvantages poised to undercut you from not paying Social Security taxes for your “son or daughter” labor if your business operates as a corporation. Under this auspice, the corporation is the employer and not … you. Therefore if your company/small business acts as a corporation; taxes for your relative’s labor must be paid.
Tax Specialists offer a unique way to avoid child labor taxes.
“Have your child contribute to a Roth IRA,” said Gary W.Carter, in an article published by Bankrate.com. Carter is a CPA and author of the book: Taxes Made Easy For Your Home-Based Business.
Carter explains another gained benefit.
“And not only have you gotten a nice tax deduction from the salary and trained your youngster to save, you’ve also helped establish a nest egg for his or her future,” Carter said.
(6) Travel, Meals, Entertainment and Gifts: Business owners who travel during official business can deduct hotel fees. Why not stay at a fancy spot? Also the cost of traveling by air, rail, or as already stated, traveling by vehicle, the cost is 100 percent deductible including costs associated with life on the road like rental cars, dry cleaning clothes, and even tipping the bell hop a few bucks.
There are exceptions to business related dining. Tax Experts interviewed by NewsBlaze said the tax code only allows 50 percent deduction off your meals while traveling. What is not deductible are meals eaten at your company unless a client is there to discuss business and you feel the need to feed the client.
Under this arrangement you are allowed to write off 50 percent of the cost of the business related meal. The 50 percent deduction limits apply evenly to client entertainment.
(7) Gift Giving: Go ahead and buy your favorite long-term client or a dedicated employee a nice gift. By purchasing gifts for selected individuals the deduction is 100 percent, up to $25 per person each year.
(8) Telephone Cost: Business calls made from your office or home are deductible. When your monthly bill arrives, underline all business-related calls, and when Tax season rolls around, tally up all 12 monthly consecutive bills and deduct 100 percent.
And if a person owns a home-based business and decides to install a second line and use it only for business-related calls, the cost for the recently installed phone are deductible as well. Tax law also allows a business owner to deduct 30 percent off a cell phone bill.
(9) Mileage: A business owner who must drive to deal with business-related matters is entitled to deductions as long as documentation can prove the cost for toll fees, mileage, parking costs, and gas by date. Driving-related business deductions break down this way: Add up mileage; then add in toll fees and parking costs to calculate deductions and multiply it by 57.5 percent for your 2015 deductions.
(10) Social Security: If you are self-employed or starting a small business the tax rules require you pay double amount in Social Security taxes, more than you’ll pay if you are employed by a company. You pay more Social Security taxes as a self-employed worker because Federal law requires employers to pay half into employees Social Security Fund, and the employee pays the other half.
Self-employed workers and independent business owners are considered both as employer and employee, which means the amount of Social Security taxes for self-employers and business owners equals 15.3 percent of your net profit.
For More Resources Related To Taxes For Small Businesses, click on the links below: