Business Tax

Do you drive your car for business purposes? The costs of operating and maintaining your vehicle are potentially deductible. Here are some guidelines.

Two Methods

The IRS provides two basic methods for computing deductions for the business use of an automobile.

Actual expense method. With the actual expense method, you deduct the actual costs of operation, including licenses, registration fees, garage rent, repairs, gas, oil, tolls, and insurance. Additionally, you may claim depreciation deductions (and/or elect expensing under Section 179). If the car is leased, you deduct your lease payments rather than depreciation. (Certain limits apply.)

Standard mileage rate. Alternatively, you may choose to use an IRS-provided standard mileage rate. With this method, you multiply the number of business miles you drive during the year by the applicable rate (58¢ per mile for 2019). When you use the standard mileage rate, you don’t separately deduct expenses such as gasoline, oil, insurance, repairs and maintenance, depreciation, or lease payments. However, business-related parking fees and tolls are separately deductible.

Which Should You Use?

Generally, you will want to use the method that produces the largest deduction. If your vehicle is costly to own and operate, the actual expense method may be more advantageous. Conversely, if your vehicle is fuel efficient and/or inexpensive, the simpler standard mileage rate method may be a better choice.

With either method, the IRS requires that you keep records that substantiate your business use of the car: the date, place, business purpose, and number of miles you travel. When you use the actual expense method, you’ll also need records substantiating the amount and date of car-related expenditures. You can avoid having to retain receipts by using the standard mileage rate.

If you decide to use the standard mileage rate for a car you own, you may switch to the actual expense method in a later year. However, you won’t be able to claim accelerated depreciation deductions for the car. With a leased car, you have less flexibility. If you choose the standard mileage rate the first year, you must use it for the entire lease period.

Personal and Business Use

If you use your car for both personal and business purposes, you must keep track of your mileage for each purpose. To figure the percentage of qualified business use, you divide the business mileage by the total mileage driven. Then multiply that percentage by your total expenses.

Dorsey CPA offers a variety of tax planning services to both businesses and individuals. Conscientious tax planning throughout the year can save you money and make tax time easier. Call us at 404-459-4174 and request a free initial consultation to learn more.

One of the main requirements of the Affordable Care Act’s employer mandate is that health coverage must be affordable, based on annual standards set by the IRS. Click through for the details on the 2019 increase for one of those standards.

The ACA requires that employers with 50 or more full-time-equivalent employees provide minimum essential coverage that is affordable — or face a penalty for not complying. The affordability requirement is satisfied if an employee’s premium for self-only coverage does not exceed a specific percentage of their household income or a certain safe harbor amount.

Percentage increase for 2019

Each year, the affordability percentage for health coverage is adjusted for inflation. For 2018, the rate is 9.56 percent of the employee’s household income, down from 9.69 percent in 2017.

On May 21, 2018, the IRS released Revenue Procedure 2018-34, which states that for plan years starting in 2019, the affordability percentage will increase to 9.86 percent — the highest amount since the ACA’s passage. This means that employees’ premiums for the lowest-cost self-only coverage cannot be more than 9.86 percent of their household income.

Three safe harbor options

As noted, the affordability percentage threshold applies to employees’ household income. But since it’s difficult for employers to know their employees’ household income, the ACA provides three safe harbor alternatives, which can be used instead of household income. You do not have to meet all three requirements; just one will do.

1. The employee’s W-2 wages, as shown in Box 1 of the form. For plan years starting in 2019, coverage is affordable if the employee’s premium does not exceed 9.86 percent of the amount in Box 1 of the W-2. Although this method is relatively simple to apply, keep in mind that it uses current-year wages. Therefore, you won’t know whether the affordability requirement for an employee has been met until the end of the year.

2. The employee’s rate of pay. Coverage is affordable if the employee’s premium does not exceed 9.86 percent of their monthly salary or wages. To determine the monthly rate of pay for an hourly worker, multiply the hourly pay rate by 130 hours.

For instance, an employee makes $15 per hour at the start of 2019. Multiply $15 by 130, which equals $1,950. Then multiply $1,950 by 9.86 percent, which comes to $192.27. Coverage is affordable as long as the employee’s premium does not exceed $192.27. For salaried employees, affordability is based on monthly salary.

The rate-of-pay method cannot be used for employees who are paid solely by commission, nor can it be used for tip wages.

3. The federal poverty level. The employee’s premium for the lowest-cost self-only coverage cannot be more than 9.86 percent of the most recently published FPL for a single person.

Applicable large employers should take the affordability standard into account when designing their 2019 health care plans — since pricing below the threshold could trigger penalties, as mandated by Section 4980H(b) of the ACA.

Dorsey CPA offers a variety of tax planning services to both businesses and individuals. Conscientious tax planning throughout the year can save you money and make tax time easier. Call us at 404-459-4174 and request a free initial consultation to learn more.

Giving your taxes your full attention just once a year isn’t the best business strategy. Experts suggest that a year-round approach is better for your finances. Click through to learn the best ways to evaluate the impact of taxes throughout the year.

Numerous tax experts agree that addressing your tax liability effectively requires planning throughout the year. Those business owners who reap the most benefits consider their taxes year-round, rather than waiting to focus on tax payments just a few weeks before the filing date.

A typical small business qualifies for roughly a dozen tax deductions. For example, you may be able to claim deductions on the following:

• Cars operated for business purposes
• Business-related travel and entertainment expenses
• Purchases of office supplies, furniture, equipment, and software programs
• Telephone expenses
• Contributions toward insurance policies, retirement plans, and pension funds

It’s surprising how many small businesses never take advantage of these deductions, mainly because they suffer from the “tax-planning-happens-but-once-a-year” syndrome. To fully benefit from these deductions, it’s important to maintain your expense records throughout the year.

Your goal should be to reduce your tax liabilities by retaining records of your purchases and determining the proportion of business costs in combined expenses. By monitoring your expenses closely all year, you can analyze each expense for its tax impact as it’s made. Additionally, smart business owners should contemplate three key steps to tax planning:

1. Invest in the most effective tax record tools for your business. Whether it’s spending roughly $30 on journals and tax books with a set of refill sheets costing less than $10 to do manual bookkeeping or investing up to $2,000 on the latest online software tax-filing applications, you will benefit from more rigorous and accurate recordkeeping. Sure, the initial investment could be significant, but regular monitoring should facilitate tracking expenses and making advance payments, which will save you money in the long run.

2. Determine when you need professional tax tips and planning advice. At times you will be able to justify paying for professional tax services, particularly if you need advice on unclear requirements in tax laws that could be in your favor. To prevent unnecessary complications and aggravations, you must avoid violating tax laws that may be applicable to your small business. If you are unsure of these laws, using the tools at your disposal, such as current software and online recordkeeping, and complementing those capabilities with professional advice when needed, can help you keep your taxes under control.

3. Establish year-round tax planning goals. A good tax-planning strategy will help you accomplish some of these goals:

• Reduce the amount of taxable income
• Claim any available tax credits
• Lower your tax rate
• Control the time when taxes must be paid
• Avoid the most common tax-planning mistakes

Plus, a year-end review at the end of your fiscal year or “busy season” can be most effective if you’ve maintained clear records and an understanding of your financial position throughout the year.

Of course, this is just a general list. Not all deductions are available in all situations, and rules change frequently. Give us a call to discuss which deductions apply to your company.

We offer a FREE initial consultation to individuals and businesses in Sandy Springs, GA and surrounding areas. Call us today at 214-361-1400 to learn more about our tax preparation services.

Everyone knows about income taxes and sales taxes, but we tend to forget about excise taxes, because they’re not obvious. Click through for an introduction to this important class of taxes, and see what’s changed.

Excise taxes are paid when purchases are made on specific goods or activities, such as wagering or highway usage by trucks. The producers or merchants pay the tax and typically include the additional tax in the price to the end consumer. Governments levy excise taxes on goods and services that have a high social cost, such as cigarettes, alcohol and gambling. Excise taxes are also referred to as selective sales or differential commodity taxes.

Here are six key facts regarding common, little-known excise taxes —

• The tax reform bill exempted certain payments made by an aircraft owner or sometimes a lessee, related to the management of private aircraft, from excise taxes imposed on taxable transportation by air.
• To support the use of alternative fuels, fuel tax credits are allowed on certain types of fuel including the following: biodiesel, including renewable diesel and mixture; alternative fuel credit and mixture; and second-generation biofuel producer.
• Indoor tanning service providers may need to file a federal excise tax return. These services are subject to a 10 percent excise tax under the Affordable Care Act. This is an example of how excise taxes are often levied on goods and services that are considered unnecessary.
• Taxpayers who engage in certain specified activities related to excise tax must be registered by the IRS before engaging in the activity. This is known as the 637 registration program. The taxpayer can go online to confirm whether they or a specific company has a valid IRS registration.
• You may be surprised to know that there is an archery federal excise tax, including the importation and manufacture of archery and fishing products. These, of course, affect relatively few people, but are good examples of how a product or service may be subject to a particular excise tax that is not necessarily obvious.
• The Environmental Protection Agency’s list of devices to reduce high tractor idling may be exempt from the 12 percent retail excise tax. This shows that a major component of the excise program is motor fuel, and different rates may apply to different types of fuel — gasoline, diesel and gasohol.

The idea is to limit the use of certain products, such as alcohol and tobacco. States also levy excise taxes. Some people say that excise taxes are stopgap measures to solve short-term problems. In fact, some note that discriminatory excises on the consumption of specified products is a step back in development of fiscal systems, postponing a more proper reform for the country or state.

Are you unsure how excise taxes may affect you? Give us a call so we can help you with your situation.

We offer a FREE initial consultation to individuals and businesses in Sandy Springs, GA and surrounding areas. Call us today at 214-361-1400 to learn more about our tax preparation services.

When you start a business, there are endless decisions to make. Among the most important is how to structure your business. Why is it so significant? Because the structure you choose will affect how your business is taxed and the degree to which you (and other owners) can be held personally liable. Here’s an overview of the various structures.

Sole Proprietorship

This is a popular structure for single-owner businesses. No separate business entity is formed, although the business may have a name (often referred to as a DBA, short for “doing business as”). A sole proprietorship does not limit liability, but insurance may be purchased.

You report your business income and expenses on Schedule C, an attachment to your personal income tax return (Form 1040). Net earnings the business generates are subject to both self-employment taxes and income taxes. Sole proprietors may have employees but don’t take paychecks themselves.

Limited Liability Company

If you want protection for your personal assets in the event your business is sued, you might prefer a limited liability company (LLC). An LLC is a separate legal entity that can have one or more owners (called “members”). Usually, income is taxed to the owners individually, and earnings are subject to self-employment taxes.

Note: It’s not unusual for lenders to require a small LLC’s owners to personally guarantee any business loans.

Corporation

A corporation is a separate legal entity that can transact business in its own name and files corporate income tax returns. Like an LLC, a corporation can have one or more owners (shareholders). Shareholders generally are protected from personal liability but can be held responsible for repaying any business debts they’ve personally guaranteed.

If you make a “Subchapter S” election, shareholders will be taxed individually on their share of corporate income. This structure generally avoids federal income taxes at the corporate level.

Partnership

In certain respects, a partnership is similar to an LLC or an S corporation. However, partnerships must have at least one general partner who is personally liable for the partnership’s debts and obligations. Profits and losses are divided among the partners and taxed to them individually.

We offer a FREE initial consultation to individuals and businesses in Roswell, GA and surrounding areas. Call Dorsey CPA today at 214-361-1400 to help you choose the right structure and ensure that you minimize your taxes.