Tag Archives: business tax

Tax Tip: HOME OFFICE EXPENSE

Is your business office in your home? Did you know that the IRS allows you to take a tax deduction for this? There are however, certain parameters. To qualify, the area must be used regularly and exclusively for business purposes. It should also be a clearly defined area, like a room in your home. It must be the principal place of business and/or a place used to meet or deal with clients or customers. A guest book or sign-in log will help substantiate this deduction.

All expenses related to the home; your mortgage, property taxes, utilities, alarm, etc., can be deducted at the percentage for the home office. This rate is determined by dividing the square footage of your office space by the total square footage of your house.

Different rules apply for day care and adult foster care homes. Consult with your CPA and/or tax preparer.

Tax Tip: MEALS & ENTERTAINMENT

As with mileage, it is important to keep good records of all your meal or entertainment expenses throughout the year. In addition to the price of the meal (how much), the IRS wants to know the 4 W’s:

who you were with – names of your guests
why you met – reason for your meeting
where you were – restaurant or meeting place
when you were there – the date

Write these items on your receipts or keep a detailed log. Should the IRS decide to audit your company, they will throw out any meal expenses that do not comply.

Entertainment is the same and will often be connected to a meal. Again, records with who, why, where, and when must be kept.

The same rules apply when travelling. You can use the federal per diem rate for meals and/or lodging. With the exception that self-employed individuals must use actual lodging receipts. Current per diem rates start at $111 for Lodging and $52 for Meals and incidentals, but vary depending on what city you are in. Check with your bookkeeper and/or accountant for specific rates.

Tax Tip: RECORD YOUR MILEAGE

It is very important to keep a good record of your mileage for tax purposes. You should always record the beginning and ending mileage each year. This is important whether you use mileage or depreciate your vehicle.

When you use mileage, you should keep some kind of log. And it is important that you be consistent. According to the law, you are required to record the following:

where you went
how many miles from your office to your client or vendor
the purpose of your trip
and the date

Unless your vehicle is industry specific, for instance, a truck or van filled with equipment and does not carry passengers; you will always have some mileage that is personal. This is also true of a vehicle that is being depreciated; so it should not be considered 100% business.

By keeping an accurate mileage log you will be able to take full advantage of your mileage deductions. And should you be audited, your log will help ensure that you do not lose precious tax reductions.

Sandra Vincent, The Bookkeeping Company

VACATION – WRITE OFF or NOT

Vacations are fun and usually for your personal pleasure. However, sometimes you use part of your vacation to explore or expand your business opportunities. If you do this, and keep good records, you will be able to write off at least part of your vacation.

To define your business part:

Record where you go and why, the business reason.
Record whom you meet with and where. Get business cards and/or brochures.
If you are attending a conference, keep your paperwork. If the conference is the reason you are going and you spend an extra day or two, the entire trip may be deductible.
If you take your spouse or family with you, you can only write off your portion of the trip unless they work in the business.

It is very important to show that you were working on your business so the more materials, addresses and names that you have the better. Photos can be helpful as well; for example, if you are a realtor looking for houses to sell.

Discussing these issues with your tax consultant BEFORE your trip can help make compliance much easier than trying to go back and get the documentation later.

Sandra Vincent, The Bookkeeping Company

Have you taken your business entity temperature lately?

Is your current business entity still the right one for you? Businesses grow – hopefully. Businesses change – always; which is why it’s good practice to review your business entity periodically.

If you’ve made some big changes this year in the size or scope of your business (like: accumulated more assets and/or increased liabilities); it’s definitely time to re-take your business entity temperature.

To get the most out of your business it’s important to have the right business structure. The proper entity type can help maximize your financial and operational success; and is important in determining your limitations and liabilities.

Your accountant or attorney can help you decide what type of business structure best fits the needs of your company today. But here’s a handy comparison chart to get you started:

Business Comparison Chart:

	C Corporation	Subchapter S Corporation	Limited Liability Company	General Partnership	Sole Proprietor
Owners have limited liability for business debts and obligations	X	X	X
Created by a state-level registration that usually protects the company name	X	X	X
Business duration can be perpetual	X	X	X
May have an unlimited number of owners	X		X	X
Owners need not be U.S. citizens or residents	X		X	X	X
May be owned by another business, rather than individuals	X		X
May issue shares of stock to attract investors	X	X
Owners can report business profit and loss on their personal tax returns		X	X	X	X
Owners can split profit and loss with the business for a lower overall tax rate	X
Permitted to distribute special allocations, under certain guidelines			X	X
Not required to hold annual meetings or record meeting minutes			X	X	X

Contact The Bookkeeping Company for assistance in identifying the best entity for your business. Chart source: The Company Corporation.