If you are in business, you probably use your car, truck or SUV for some business purpose. Indeed your business may have purchased a vehicle. How much of the purchase price you can deduct as a business expense during any given year is a complex calculation, called depreciation, which congress has further complicated with the addition of things like 100% Bonus Depreciation. This blog talks how you depreciate a new car placed in the service in 2011 including what to do about that pesky 100% Bonus Depreciation. (more…)
Posts Tagged ‘listed property’
That Pesky Bonus Depreciation & Automobiles — 2011 Taxes
Thursday, July 14th, 2011Tags: 2011 tax depreciation, automobile, bonus depreciation, car, depreciation, how to depreciate, IRS safe harbor method, listed property, MACRS, truck
Posted in Business Taxes, Individual Taxes | 1 Comment »
Small Business Jobs Act-Misnomer?
Thursday, October 7th, 2010Congress finally did something, only it wasn’t all of what we all have been waiting on. There still is no estate tax fix, no AMT patch, no reinstatement of Bush tax cuts, no decision on capital gains taxes and other tax breaks such as teacher’s supplies, college tuition etc. Look for these issues to be addressed one way or the other in the post-election lame duck session.
Anyway, on September 27, the Small Business Jobs Act was signed into law by President Obama. It is supposed to provide $12 billion in tax breaks for small businesses-but the “small” businesses that will benefit from these tax breaks are probably NOT considered “small” business by your average Mom & Pop operation.
What are the provisions (and offsets) of this act?
- An increase in the deduction for startup costs from $5,000 to $10,000 & the startup expense maximum, before dollar for dollar decrease in the deduction begins, is bumped from $50,000 to $60,000. Needless to say this is not of any benefit to businesses that were in existance at the beginning of 2010.
- The write off of up to $500,000 in new equipment purchased in 2010, and the limit before dollar for dollar reduction occurs raised to $2 million. Special 50% Bonus depreciation is also extended for 2010. Certain real property is eligible for expensing as well. For larger small businesses these extensions of expensing benefits may be useful. If a business is truly “small,” or a service-based business, it is not heavily invested in equipment; the increase in Section 179 and extending 50% Bonus depreciation for another year isn’t too helpful.
- A 5-year carryback period for unused General Business Credits. Of course the benefit requires a business to have unused General Business Credits and have profitable years to carry them back to. An eligible small business for purposes of this tax break is one with average gross receipts of less than $50 million dollars over the last three years.
- In 2010 the General Business Credit can offset AMT.
- The holding period for Built-In-Gains tax for a C-corporations that converted to S-corporation is reduced from 10 years if the 7th year of the holding period precedes 2009 or 2010, and or the 5th year of the holding period precedes 2011.
- Reduction of net earnings from self-employment tax for insurance premiums paid by the self-employed. It is a good tax break. Of course the small business owner must be paying health insurance premiums to take advantage.
- The act does have several ways to increase money available to borrowers, including a $30 billion fund to increase lending by community banks, and reduced fees for certain SBA loans, but it has not changed lending standards, which have tightened up considerably since the recession began. Mom & Pop’s ability to borrow tends to be predicated on their individual FICO scores. Also lending tends to be predicated on growth-Mom & Pop would have to produce a business plan, showing how they intend to use the money to grow (and provide jobs perhaps), but growth is not something happening in many small businesses right now. Lenders could change their standards, but they don’t have to… However a small business may be able to benefit from these loans if they can move forward with a coherent SBA loan application.
- For years 23% of federal contracts have been supposed to go to small business. The act is supposed to reduce the red tape for getting a federal contract and periodically check on the size of federal contractors to make sure they still qualify as a small business.
- Investors have a very limited window of opportunity to invest in small businesses and get a 100% tax break from capital gains taxes down the road. However this tax break is for businesses organized as C-Corporations only-those that issue Qualified Small Business Stock. For S-Corporations, LLCs, partnerships and sole proprietorships there is no similar incentive for investors.
- Businesses get relief from the Tax Code requirement that they account for how much of their employees’ company-issued cell phone use is for personal calls in order to deduct the full cost of the phones. Removing cell phones from listed property is a welcome change.
- Limitation of penalty for failure to disclose certain reportable transactions on a return; the penalty is limited to 75% of the reduction in tax from the transaction-there are minimum and maximum penalties as well. The change in penalties is retroactive to 2007.
- The IRS can levy a federal contractor before a CDP hearing, although taxpayers would still have a reasonable time for a CDP hearing after the levy is issued.
- Starting in 2011, participants in 457 plans are allowed to treat elective deferrals as Roth IRA contributions
- Rollovers from elective deferral plans 403(b), 401(k) and 457(b) are allowed to be treated as rollovers into Roth IRAs.
- There is also a provision for more favorable treatment of nonqualified annuity contracts
- Guarantee Fees paid by US taxpayers to foreign persons will be subject to withholding tax.
- Any fuel with an acid number greater than 25 (crude tall oil, a waste production from paper manufacturing) is excluded from the definition of “cellulosic biofuel” for purposes of the tax credit for alcohol used as fuel.
- Starting in 2011 there is an increase in the penalty for failure to report payments via 1099s from $50 to $250 and businesses receiving rental income are required to report payments of more than $600 on Forms 1099-MISC and Form 1096 (with some exceptions such as military personnel temporarily renting out their principal residences etc.). This regulation is on top of the expanded 1099-MISC information reporting that was buried in the health care legislation.
Some of these provisions are not pro-Mom & Pop moves and do not “help Main Street businesses compete with large corporations.” Whereas a moderate-sized business probably has resources to handle regulatory red tape — the average Mom & Pop does not; responding to red tape takes valuable time and money away from their business, resources they can ill afford in the current economic climate. It is very hard for Mom & Pop to respond on the fly to continuously changing rules for employees, enviromental regulations and tax laws.
Small business creates most jobs, but right now there is no consumer demand. Few small businesses are in a position to take advantage of the pro-growth provisions in the Small Business Jobs Act. It is hard to see how this act actually will create jobs. For the average Mom & Pop there aren’t many provisions that benefit them.
Of course we can always hope the Small Business Jobs Act accomplishes it goals…
As always, small business services and taxation are our business. If you need help Please give Art & Business Consulting a call. We would love to engage you as a client.
The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. The content of this blog generally applies to business and individual taxation in the United States of America. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein. Art & Business Consulting LLC currently does not have a certified public accountant, human resource specialist, certified financial planner or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.
Tags: 2010 taxes, 401(k), 403(b), 457(b), 50% special depreciation, AMT, BIG tax relief, biofuel tax credit, business tax breaks, business taxes, carry back, cell phones, crude tall oil, easing penalty for engaging in listed transaction, expensing assets, General Business Credit, increased 1099 penalty, increased 1099 reporting, listed property, Loan, rental income, Rollovers, Roth IRA contributions, SBA loan, section 179, Small Business Administration, Small Business Jobs Act
Posted in Business Taxes, General Business | 1 Comment »
Deducting Business Use Passenger Vehicles
Sunday, September 13th, 2009Many business men and women use their own personal car, truck or van for their business. Others have put their personal vehicle in their business’ name. Still others have a fleet of passenger vehicles for the use of their business. Passenger vehicles are listed property which requires special documentation of business use. As listed property passenger vehicles place in business service have one thing in common, the business owner or employee who uses the vehicle needs to keep a log documenting business use, verses commuting and personal usage so that the federal deduction for automobile expenses of the business use of the vehicle can be determined.
In certain circumstances when the vehicle has been converted in a very specific way such that it can only be used for business purposes a log need not be kept, but merely slapping a magnet with the business’ name on the side of the car will NOT eliminate the need for the logbook. Ambulances, hearses and vehicles for hire do not require the logbook.
What is a passenger vehicle? Passenger vehicles are defined as any four-wheeled vehicle (including a truck or van) that is made primarily for use on public streets, roads, and highways. Its unloaded gross vehicle weight (gross vehicle weight in the case of a truck or van) must not be more than 6,000 pounds. Vehicles that weigh more than 6,000 pounds are not considered passenger vehicles, but trucks and SUVs that exceed this weight do have their own limitations for deductions (not discussed in this blog).
Why is a mileage log required? Non business use of a passenger vehicle is not deductible for tax purposes; non business uses includes mileage of going to and from home to the place of business, such mileage is called commuting mileage. An employee’s non business use of a business-owned passenger vehicle is considered a taxable fringe benefit to the employee. If a business does not keep the mileage log the IRS may disallow ALL of the vehicle’s expenses, which is generally a bad thing, so, keep and regularly update the mileage log.
What does a mileage log need?
- Mileage at the start of the year and mileage at the end of the year such that the total mileage on the vehicle can be figured.
- Date of each business trip.
- Mileage at the start and the end of each business trip so that the total mileage of each trip can be figured.
- Business purpose served by the trip: where the driver was going and why they were going there.
- The log entries need to be made at or near the time of the business trip.
- The log needs to be a written log.
- Like all business receipts the business and/or employee needs to keep the written record with their tax records.
A small notebook can accommodate this information. Affordable mileage log books can may also be purchased at most office supply stores for a few dollars. In general it is best if the log book stays in the vehicle so that the mileage can be immediately noted.
Keep receipts for actual vehicle expenses. A business and/or employee of the business should also keep receipts documenting ALL expenses relating to the use of the passenger vehicle, such as gas, oil, maintenance, insurance, lease payments, garage rental, etc.
Figuring the Automobile Expense Deduction. At tax time add up all the business use mileage. Figure the total mileage on the year. The ratio of business mileage to total mileage is used to figure the deductible percentage of the actual expenses relating to the business use of the vehicle.
Using the Mileage Rate Deduction. Alternatively, the business may use the mileage rate deduction if that is the method they used when they first placed the vehicle in business service, however if section 179 or MACRS depreciation is taken, the mileage rate deduction my not be used thereafter. If 5 or more vehicles are used at the same time, the mileage rate deduction may not be used. If the vehicle is used for hire the mileage rate deduction may not be used. The mileage rate deduction is merely a cents per business mile calculation. In 2009 the mileage rate is 55 cents per business mile driven. If the mileage rate is used to figure the automobile expense deduction the business may NOT deduct the actual expenses: gas, oil, maintenance, insurance etc. However parking and tolls and the business percentage of very few other actual expenses such as personal property taxes associated with that vehicle can be taken in addition to the mileage rate deduction.
Depreciation: Depreciation is a way of taking the automobile expense associated with the purchase price of a passenger vehicle over time; in general the business may not take the total cost of acquiring the vehicle in the year of purchase as an automobile expense. The accelerated depreciation of a passenger vehicle under MACRS (IRS required method of depreciation) may not be taken when the vehicle business mileage is less than 50% of the total mileage, the straight-line method ADS (another required IRS method) must be used. If MACRS is used initially and business use drops below 50% before the vehicle is fully depreciated, the business may have to give back some of the accelerated depreciation taken in prior years. Depreciation may not be taken if the business is using the mileage rate to figure their automobile expense deduction. For a passenger vehicle placed in business service in 2009 the depreciation limit (including section 179) is $2960, $3160 for trucks and vans. If the vehicle qualifies for the special depreciation the the depreciation limits are $10960 for autos, $11160 for trucks and vans. Remember this depreciation is the maximum allowed, but the maximum depreciation allowed is reduced by the percentage of business use.
So keep a mileage log and keep your receipts.
If you require assistance with your business taxes or other business services, that is our business. Please give Art & Business Consulting a call. We would love to engage you as a client.
The usual disclaimers: Although ABC has made every effort to insure the accuracy of Taxes, Tips and Tools, misinformation, disinformation, changes, mistakes, typos and hackers happen, therefore Art & Business Consulting LLC takes no responsibility for any action taken or results based on the information supplied here in. Internal Revenue Service Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement address herein. Art & Business Consulting LLC currently does not have a certified public accountant or an attorney on staff; this information is purely for educational purposes and not to be construed as legal or financial advice. Art & Business Consulting LLC and its employees, members and associates are not engage to practice law; you always should discuss legal matters with your attorney before talking to anyone else.
Tags: automobile, business use, car, depreciation, listed property, mileage log, mileage rate, tax deduction, truck, van
Posted in Business Taxes | 2 Comments »