Monthly ArchiveApril 2015

Upcoming Webinar Video | May 16th 2015

Have you registered for our upcoming webinar on foreign asset disclosures.  This event usually gets completely sold out very quickly.  Please make sure to register today in case you have not already done so.  Check out this small video to see if this webinar is for you.

 

 

Benefits of Joining Business Association Organization

Business association organizations help the members to promote their business. These associations are devoted to the prosperity and growth of their members. They provide modern ideas and plans involving latest technologies and programs that help them to compete in the present market. They are also committed to provide best services and benefits to its members. These organizations also help businessmen to extend his business all over the world.

 Why should a company register with a membership association organization?

Many things are not directly related to your business, but you need to keep them in mind for a successful business venture. However, it is difficult to manage everything single-handedly. In order to avoid all the stress, you can join a business association organization and tell them your requirements. These associations specifically concentrate on the tasks that are time consuming or excessively costly for a company to handle by themselves. The tasks like lobbying, researching, data collecting and setting the standard of industry are carried out. Spokesperson of the company compiles all the requirements in a file and submits it to the Business Association Organization and after getting that file the business association starts with their job.

Many leading Business Association Companies are present in the U.S.  There is a wide variety in firms.  Large firms with the goal to spread their business in wide areas get facilities for research, industry improvement issue, etc. Simultaneously small companies can also get a lot of benefits from these companies.

 Laws and Rules Maintained by Business Associations

Areas like advertisement, charitable contribution, lobbying, rules and regulations, and many other tasks are maintained by these associations. The rule for advertisement is that you can deduct advertising costs that are directly connected to your business. However, for this you need to follow a certain law in the initial stages that will help you to gain profit in the future.

If you make cash payment to an organization then the payment can be termed as charitable, gift or for business. If that is not business related then it should not be deducted from your business account. Credit card companies charge a particular amount as business fee, and this can be considered as business expense. There is also a tax for hiring a tax consultant, and this can be deducted as business expense.

Lobbying is another tough issue to handle. It includes tasks like amount to be paid for influencing legislation, participation in a political campaign, attempting to influence general people; communicating directly to covered executive officers, etc. All these issues are handled by the association where you take your membership.

 How to apply for membership?

Business Association Membership dues companies have different categories for different qualifications and due structures. The categories are Corporate, Business, Associate and Affiliate. You can apply online for membership. In the online membership application, you will need to answer few questions regarding your member category. These associations provide different plans and offer different types of memberships. Each and every membership category has exclusive packages.

 

 

 

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Bad Debts That You Cannot Collect

In today’s high cost of living, saving money is a big challenge. There are business expenses, personal expenses, tax payable to the government and more. It seems like the expenses are never ending. However, there are certain costs for which taxes can be written-off. One such category is bad debts that you cannot collect.

A bad debt, as we all know, is that money that you cannot recover. Bad debts are of two kinds – business bad debts and non-business bad debts.

 Business Bad Debts

Any amount that comes as an expense from the operations of your business is regarded as business bad debts. This amount can be deducted from your business tax return. A typical business bad debt would include loss incurred due to a debt. This could either be:

  • An expense resulting from your business operations
  • An expense closely related to the business which is of minimal value now

An expense has close relations with your business if the motive for which it was acquired is associated with your business.

Business owners face bad debts when they sell products or services on credit. Other cases of debts include loans granted to clients, distributors, suppliers or employees. As per accounting norms, the cost of goods and services for which customers have not paid comes under notes or accounts receivable. When you are unable to obtain this amount of money, it is recognized as bad debts that you cannot collect.

Bad debts can be deducted or waived off from your tax return only if the amount was mentioned in your gross income. These accounts or notes receivable should be in the books of the year for which deduction is being claimed or in the books of the year prior to that. Below mentioned are two methods for deduction:

 Accrual Method: As per accrual method, income is reported when you earn it. If you follow this method of accounting, then you will be eligible to get a deduction for bad debts that you cannot collect if the uncollectable amount has been recorded in income.

 Cash Method: As per cash method, income is reported when payment is received. Of course a bad debt will never be reported because you did not receive the payment for it. If your accounting books follow this method, then you are not eligible for any bad debt deduction. This is because the amount that you have not collected is not included in the amount for income.

 Non-business debts

These include the money that you were unable to collect but had no relevance to your business. These are bad debts generated from other activities and are deductible under the category of short-term capital losses as per Form 8949 and Schedule D (Form 1040).

Next time when you file your tax return, make sure that you are able to apply for bad debt deductions, if applicable and save money on that.

 

Tax Deduction Strategies for Small Businesses

As a small business owner, you can utilize a proactive approach and seize all opportunities available for conducting tax deductions as provided for under the law. Overlooking certain crucial write-offs leads to a bloated tax bill. Changes to the recent tax law have altered how Section 179 on deduction on bonus depreciation works. You can maximize write-offs for your home office and get deductions for business travel and automobiles, along with tax shelters for real estate property.

  1. Tapping into Major Tax Savings as per Section 179 Depreciation

A small business can benefit through huge increment in First-Year depreciation allowance as covered by Section 179. Following this law, you can deduct full cost of most used and new business personal property. The maximum amount provided for here got gradually boosted for 2009 from $25,000 to $250,000. Later on, the 2012 American Taxpayer Relief Act (ATRA) preserved the $500,000 maximum deduction adopted by the 2010 Small Business Jobs Act for two years. This provision was backdated to 1st of January 2012 and remained effective through 31st December 2013.

  1. Claiming Bonus Depreciation for All Qualified Assets

A business can lay claim to “bonus depreciation” for assets which are qualified and placed in service during the whole year. This business tax credit applies to the following:

  • Property with 20 years or below of cost recovery period
  • Qualified leasehold improvements
  • Depreciable software which is not amortized for over 15 years
  • Water utility property

 

  1. Triggering Quicker Write-Offs as per Section 179 Depreciation

It is possible to maximize Section 179 expensing deduction by undertaking some shrewd planning of your taxes through the ways below:

  • You can claim the allowance accrued through compensation payments if your company zeroes out its taxable income. The tax law limits annual deduction to amount of income taxable.
  • Boost the limit of your business income, which should include that accrued from your active businesses.
  • Maximize business percentage if claiming allowance for assets partially utilized for non-business reasons.

 

  1. Larger Deductions for ‘Heavy’ SUVs according to Section 179

If you opt to deduct annual expenditure as opposed to using standard mileage allowance, take note of an appreciably large tax advantage if owning heavy-duty vans, pickups and SUVs. These vehicles have gross vehicle weight rating or GVWR of over 6,000 pounds from the manufacturer and are viewed as “trucks” for purposes of taxation.

Such heavy-duty vehicles depreciate more rapidly than regular passenger vehicles, when used intensively for business purposes.

  1. Deductions of Fuel Tax for Business Vehicles

You may deduct automotive expenses via a standard mileage rate, set each year by the IRS. Doing this sets you free from having to account for actual expenditure incurred. For instance, business drivers got 56.5 cents for each mile in 2013.

  1. Tax-Free Family Vehicles as part of Business Deductions

Operation and maintenance costs are deductible for cars utilized in doing business, which includes depreciation. Your auto repair firm may provide cars for the whole family in this case. The business you own can deduct the entire amount of operating costs if your family members are employed by the enterprise. Car expenses which are deductable include:

  • Cost of gasoline
  • Repairs,
  • Insurance
  • Interest on car loans
  • Depreciation
  • Licenses
  • Taxes
  • Garage rents
  • Parking tolls and fees

 

  1. Writing off Home Furniture and Computer as part of Self-Employed Tax Deductions

Under Section 179, many taxpayers who are self-employed may deduct purchases for equipment, as opposed to capitalizing them. This section applies to the vast number of business assets, including furniture and computers meant for domestic use.

  1. Owning Your Business Premises

Once profits of your company start growing and business stabilizes, consider owning as opposed to renting your quarters. When evaluating the comparative costs, think of a reasonable time-period, such as of 10 years and factor into your calculations purchase price of your desired building at a prime location.

  1. Sheltering Real Estate Property of up to $25,000

Prices of real estate have recently gone down in many places, presenting great opportunities for investment. As well, business owners can enjoy tax shelters for investing in property. One has to own a 10 percent minimum portion of such investment property without involving limited partnership interests, apart from actively managing it. Business tax credit of 10 percent is available too for fixing old buildings, which changes to 20 percent if the building has historic significance.

  1. Turning Home into Rental Property

Many home owners have been adversely affected by recent devaluation in real estate property. This even gets worse due to inability of deducting loss from selling your principal residence.

Turning your home into rental property is a brilliant strategy in such situations. You only require holding it out for rent while relocating, before deducting losses once the place is sold. This is a shrewd tax move which capitalizes on an important distinction that applies to business or investment property.

Claiming Auto Repair Expenses as Tax Credit

Expenses for car or auto repairs can be considered as tax deductions, subject to certain limitations and rules. Before you start filing your tax return, here are some important points that you should know about.

  • The burden of proof lies on the shoulders of the taxpayer. He has to prove that
  • The car was used for business purposes or, if the taxpayer is an employee, the car was used in the conduct of his job;
  • There was actual damage to the car that rendered it in need of repair;
  • The taxpayer has incurred expenses to have the damage repaired and bring the car back in working condition.

In cases where the car was both for personal and business use, the only amount eligible for tax deductibility would be that which pertains to the business purpose of the vehicle. Therefore, car repairs must be clearly separated or distinguished according to their uses or purposes.

  •  In order to be able to claim deductions for car or auto repairs, the individual must have qualified to do so under the Actual Expense method, as opposed to the Standard Mileage Rate, which does not consider actual cost of repairs and maintenance.
  •  Individuals must keep adequate to complete records of all expenses incurred on the repairs of the car. These include copies of receipts, invoices, and job order documents. File them chronologically, for easier access later on when claiming for the deduction. Note that you will only be allowed to deduct those that are supported by these valid documents.
  •  If the taxpayer is an employee using your car for business purposes, the amount that can be deducted would only be the amount which was not reimbursed by the employer. Record-keeping is also essential. Employees should maintain records of expenses on car repairs. Records of the reimbursements made to them by their employers for said repairs should also be kept. This is so that it will be easier to identify the amount not reimbursed, and can be claimed as deduction from tax later on.
  •  It’s not just repairs for damages that may be considered for tax credit purposes. Even repairs that have to be made in order to pass state laws or regulations, such as emission tests and smog tests, may also be claimed for deduction.
  •  Individuals who have claimed these expenses as tax deductions are also advised to keep these pertinent records for a period of 3 to 5 years, even 7 years, in case post-audit processes call for them.

Of course, it goes without saying that the best option would still be to keep your car in good working condition to avoid the need to have it repaired or undergo overhauls. This will definitely save you the high cost of repairs and maintenance. However, in the event that they are unavoidable, you can still claim them as tax deductions, as long as you have records and proof to show when filing your tax return.

Tax Credit on Car Expenses: Standard Mileage Rate vs. Actual Expenses

Many people are still confused on what amount to deduct from their tax for expenses incurred on a personal vehicle’s repairs. They are given two options: deducting the actual expenses incurred, or deducting the amount computed by using the standard mileage rate. Which one is better? Which will benefit the taxpayer more?

In order to answer these questions, it would be best to get a clearer understanding of the two methods.

Using Actual Expenses

This is straightforward enough: deduct the amount actually spent or incurred on the operation, repairs and maintenance of a car or vehicle.

There must be a clear indication on which part of the amount was used for personal purposes and which part was for business use.

To come up with the final amount, the following are included in the computation:

  • Expenses on gas, oil and lubricants
  • Toll fees paid
  • Lease payments made
  • License fees
  • Insurance premiums paid
  • Rental and other fees directly related to the car, such as garage rental and parking fees
  • Cost of repairs (includes cost of spare parts and labor)
  • Cost of tires
  • Depreciation

Using the Standard Mileage Rate

Individuals will use a standard mileage rate set by the tax authorities. For tax year 2014, the rate was $0.56 for every mile. Only the miles used for business will be allowed as tax credit. This means that, in this method, the individual must keep track of the miles driven by the car, especially the miles driven for business.

The following are exclusions in this method; meaning, they cannot be claimed as deductions if the individual chooses to use the standard mileage rate, since they are already considered to be part of the rate set forth by the IRS.

  • Fees incurred on registration of vehicle
  • Insurance premiums on the vehicle
  • Fuel and maintenance expenses, including repairs
  • Lease payments on the vehicle, if any

A Comparison

In both cases, there is a need to divide the expenses between personal and business expense. An individual can only claim expenses on cars, including for auto repairs, if they have been used for business purposes.

Compared to the actual expenses method, choosing the standard mileage rate comes with several limitations or restrictions. For example, once it was chosen and clearly stated on the individual’s tax return, it is irrevocable, at least until the following tax year. Any amendments of the return within the year will also have to follow this method, even if the individual wants to switch to using the actual expenses.

Experts recommend that owners of new vehicles go for the standard mileage rate method during the first year that they use their car for business purposes. In the succeeding years, it would be up to the individual whether he wants to switch to using the actual expenses, or stick to the standard mileage rate.

Clearly, the simpler option would be using the actual expenses, provided you have documentation (e.g. receipts, toll tickets) to back it up. It also has the advantage of letting the taxpayer have his expenses for car repairs as a deduction. This method is also more advantageous for those who drive only a few business miles.

When trying to decide which of the two would be better, try performing mock-computations. The one that gives you a greater amount of deduction is surely the better option.

 

Deducting Building Repairs and Maintenance Expenses Deductions

Deducting Building Repairs and Maintenance Expenses Made Easy

Everything gets old with time and buildings are no exception. The inner structure, material and also the color starts to wear off with time. A person may think that his building is just perfect because it looks good from the outside or just because it is clean, but the internal structure of the building gets weak due to climate change and corrosion. Regular maintenance and repair work is essential in order to keep your home, office, studio, workplace or apartment strong. Unscheduled and sudden major repair needs in your building may disrupt your normal lifestyle and may also distract you from your preplanned activities. You can give your building repairs and maintenance work to a contractor who will setup a proper work schedule that does not disturb your work-flow.

While assigning your maintenance job to a contractor, always ensure that he is professional with proper work ethics and see to it that he maintains a work schedule. You cannot let your building maintenance work go on for several days. Look for a tender that includes cost of materials, labor charges and date of completion. Once you are sure that the repair work is in safe and trustworthy hands, go ahead and make the deal.

When you need to repair your building, you can also deduct this repair and maintenance cost from taxable income. But the expenses must relate to the wear and tear or any other damage that is caused due to renting out your property. It could be repairing or replacement of a broken or discolored part or plumbing solutions or it could also be complete maintenance work like repairing the whole building and making it stronger in nature. Maintenance is fixing or preventing deterioration and this also includes painting the house, oiling the jammed doors or fixing water leakages. But not all expenses are claimable. The initial expenses in repairs and maintenance cannot be claimed at once. In order to make a property suitable for renting one cannot claim the tax cutter at once. These may include fixing any broken parts, putting up the walls, changing floors and also other fixing things. But when the property is up for sale, these costs can work out and help in deducing the tax paid. Repair work keeps the property in good condition and so the cost can be included in the deductible expense of the year.

Some of the exceptions where you cannot claim deduction are when you refurnish your kitchen or remodel your bathroom or renovate your property. Tax deduction can only be done if the expenses are absolutely important. As your property gets older, the value of your property depreciates. However, you can also claim a deduction in that. Documenting the actual cost of the building repair and maintenance is very important. Using the same material as original should be maintained because higher quality material may be accounted as improvement and IRS may not allow deduction in that case.

Board Meeting Deduction

Board Meeting Deduction

The expenses related to the working of a board of directors are evidently termed as ordinary and necessary expenditure of conducting business as per Income Tax rules and are thus deductible. A board meeting is specifically meant for company directors. It is not a general body meeting where only the shareholders meet; but it is a meeting where the directors discuss about various issues and future prospects of the company. The legal responsibilities the board members depend on the nature of the organization, and the jurisdiction. Board meeting is organized at a regular interval and is headed by the chairperson of the organization who is also responsible to maintain a formal atmosphere during the meeting. It comprises of a fixed number of eligible members (Directors only) and everyone is bound by the rules, regulations and any resolutions that is passed in the meeting. The meeting is conducted under the presence of President, Vice President, Treasurer and Secretary.   Other official members may also be present. Recording the Minutes of the Meeting is important.

In a board meeting, the directors do the following:

  •  Evaluating the company’s growth, success and profit and governing of the organization
  • Establishing company policy and objective
  • Accounting to the shareholders and report about the accomplishment of the organization
  • Approving annual budget and ensuring organization’s capability of producing funds
  • Setting salaries of the management and employees

To legitimately write off taxes, expenditure in business should be simple and necessary to be deductible. A simple expense is one that is ordinary and common, and is accepted in industries. A necessary expense is one that is helpful and apt for the business. An expense does not have to be imperative to be regarded as necessary. Although an expense may be both ordinary and necessary, sometimes one may not be allowed to deduct it in the year paid or incurred. At times it is not allowed to deduct the expense at all.

Like many other business expenses, board meeting expenses fall under the category of necessary business expense and is thus deductible from taxable income.  However, to be deductible, board meeting expenses must be related to business activities. Some such expenses are travel expenses incurred due to traveling to and from the board meetings, hotel stays, food expenses, supply purchases, compensation for services and many such expenses can be written off business expenditure if you can give proof that the expenses were solely for the business purpose. Tax cannot be deducted from expenses that are made for an official’s personal use and where there is no interest of the company. In case of phone bills (if there is personal and business usage), then the taxpayer can only deduct the portion of the bill which is used for business.

Keeping a record of the expenses is very essential to write off tax. They also need to be classified properly as travel-related expenses, dining expenses and entertainment expenses. The company’s accountant must be responsible for identifying, classifying and deducting board expenses. When documents are to be produced to IRS it becomes easy if all the documents are recorded and are in place. The board of directors also needs to determine how to maintain the process of documenting expenses, which includes filling reimbursement forms, keeping a track of receipts and keeping a proper travel log, etc.