Write Off Your New Car Used For Business Purposes

by Mounica Kota | May 29, 2016 | Deduction & Credits

Write Off Your New Car Used For Business Purposes

Like any areas of tax law, vehicle write offs can unfortunately be a little complex. Here, we’ll provide a quick run through to explain when new vehicles qualify for deductions and how much you can expect to expense.

Many people will be quit confused with lot of questions about tax deductions for vehicle purchases. Can I write off my new car? Does it make sense to purchase a vehicle now before the end of the year? Can I deduct the full amount?

When can you deduct new vehicle as a business expense?

Did you know that if you buy a vehicle with a Gross Vehicle Weight Rating (GVWR) over 6000 pounds you can deduct your vehicle (or part of your vehicle) as a business expense if it’s used mostly for your business. Seems pretty simple, but exactly how much you can write off varies depending on the type of vehicle and its use.

If you purchase a business vehicle that by its nature is not suited for personal travel (ambulance, hearse, cargo vehicles without seats, taxis, vehicles with seats for over nine passengers), you can generally write off the whole thing.

This doesn’t mean you can purchase a hearse, claim the full expense, and then use it as your personal vehicle. Personal use will still trump the kind of vehicle you purchase.

For passenger vehicles, trucks, and vans not meeting the guidelines that are used more than 50% in a qualified business use, the total deduction for depreciation including both the Section 179 expense deduction as well as Bonus Depreciation is limited for trucks and vans, you’re able to claim a portion of your expenses the year it was purchased and made available for use.

Cars – up to $3,160 for regular depreciation
Trucks and Vans – up to $3,460 for regular depreciation

Under Section 179 of the tax law, there’s a specific depreciation break for certain passenger vehicles with a gross weight between 6,000 and 14,000 lbs. If these vehicles are financed and meet proper conditions, you can qualify for expensing up to $25,000 the first year.

Regular depreciation can also be taken depending on the cost of the vehicle.

Here’s a list of vehicles that qualify under section 179, although this list is not exhaustive:

Audi: Q7 TDI
BMW: X5, X6
Buick: Enclave
Cadillac: Escalade
Chevy: Silverado, Suburban, Tahoe, and Traverse
Dodge: Durango and Ram pickup
Ford: Expedition, Explorer, all F-Series pickups, Transit vans
GMC: Acadia, Yukon, all Sierra pickups
Infiniti: QX56
Jeep: Grand Cherokee
Land Rover: LR4, HSE, Sport
Lincoln: MKT, Navigator
Mercedes: GL 350 diesel, ML350, R350
Nissan: Armada NV, Pathfinder 4-wheel drive, Titan
VW: Touareg hybrid

In past years, there’s been an opportunity for additional deductions through bonus depreciation. Bonus depreciation for 2016 is not yet available, but this could change before the end of the year.

Significance of Filing an Annual Report

by Mounica Kota | May 29, 2016 | News and Social

Significance of Filing an Annual Report

What is an Annual Report?

Most entities are subject to regular reporting requirements to the federal government, state jurisdiction, and/or local jurisdictions in which business is transacted. The definition of an annual report is a required filing due to the Secretary of State, usually a listing of directors, officers and some financial information.

States in which your corporation or LLC is formed or qualified to do business in generally require you to file an annual report.

By filing an annual report, you’re providing the Secretary of State with updated information about your business. The details of your annual report may vary from state to state, but typically include information about your corporation or LLC such as:

The names and addresses of your officers, directors, members, managers and/or trustees
Your principal business office address
The name of your company’s registered agent
The number of shares of stock your corporation has issued

Different states charge different filing fees for annual reports. Deadlines, too, vary from state to state. Some states have only a bi-annual (every two years) filing requirement. Other states require corporations and LLCs to file an initial annual report soon after formation.

What is the purpose of filing an Annual Report?

The purpose of filing an annual or biennial report is to provide the jurisdiction with current information on the company’s structure (officers, directors, members, registered agent, etc.) and finances (authorized shares, issued shares, stated capital, paid in capital, etc.)

In many states the amount of a company’s franchise tax due is often determined by the information provided by the company on its annual report.

What happens if I ignore or miss my Annual Report due date?

Missing an Annual Report due date can have major consequences. A company’s good standing status and even its rights to exist can be jeopardized by ignoring annual report requirements. A company may also incur monetary penalties for not filing their report on time.

If you are late to file your annual report, depending on the state, you’ll have to pay penalty fees and reinstatement fees, both of which are much higher than the price of actually filing the annual report for the first time.

We at AO Tax can prepare and file your business’s annual reports. By outsourcing the job to us, you’ll save time, remove uncertainty about details, deadlines and fees, and help protect your company’s good standing. To make sure we have the right information, we’ll even conduct a thorough audit of your company records and provide you a detailed report of our findings. It’s important to note that along with annual reports, many states require companies to pay annual franchise taxes. We at AO Tax can help you satisfy your franchise tax filing requirements, as well as a host of other business compliance obligations.

Choosing a Tax Accounting Method

by aotax | May 29, 2016 | News and Social

Choosing a Tax Accounting Method

Do you know that accounting method actually used on the initial return is an election of that method, so tax payers should carefully analyze financial data to ensure that the method is applied properly. A business must use the same accounting method to figure its taxable income and to keep its books, and the method must clearly reflect its income. Understanding Accounting Methods

An accounting method is a set of rules used to determine when income and expenses are reported on your tax return. In general, there are four types of accounting methods, which dictate how business transactions are recorded in the business financial books:

Cash Method – income is recognized in the year received, and expenses in the year paid.
Accrual Method – Income reported in year it is earned and deduct or capitalize expense in the year incurred.
Special Method – This method of accounting is for certain item of income or expenses and it’s include for Amortization, Bad Debts, Depletion, Depreciation, Installment Sales.
Hybrid Method – Any combination of two or more above methods of accounting methods, if the combination clearly reflects business income and use it consistently.

Why Method Matters

The accounting method a business uses can have a major impact on total revenue the business reports as well as on expenses that it subtracts from revenue to get the bottom line. The core underlying difference between these two methods is the timing of transaction recordation. The timing difference between the two methods occurs because revenue recognition is delayed under the cash method until payments arrives in the business.

Similarly, the recognition of expenses under the cash basis can be delayed until such time as invoice paid.

BASIS FOR COMPARISON	CASH ACCOUNTING	ACCRUAL ACCOUNTING
Meaning	The accounting method in which the income or expense is recognized only when there is actual inflow or outflow of cash.	The accounting method in which the income or expense is recognized on mercantile basis.
Nature	Simple	Complex
Applicability of matching concept	No	Yes
Recognition of revenue	Cash is received	Revenue is earned
Recognition of expense	Cash is paid	Expense is incurred
Degree of Accuracy	Low	Comparatively high

Changing your accounting method

Generally, you can use any permitted accounting method when you file your first tax return and you don’t need any IRS approval for the first time. However, you have to use the selected method consistently from year to year and it must clearly reflect your income.

Any business that wants to change its accounting method, need to take permission from IRS for change in accounting method by using Form 3115 to request a change.

A change in your accounting method includes a change not only in your overall system of accounting by also in the treatment of any material item. A material item is one that affects your income or your ability to take a deduction.

Timing and application process:

Applications can be made at any time during the tax year, but the earlier the better.

You may also get a six month of extension to file the application so long as your tax return for the year in which the change is requested is filed on time.

The IRS looks at two things when deciding whether or not to approve a request for a change in accounting methods:

Whether the new method will accurately reflect income
Whether the new method will create or shift profits and losses between businesses.

Are you Aware That Employing your Child will Reduce your Family Tax Burden?

by aotax | May 29, 2016 | Deduction & Credits

Are you Aware That Employing your Child will Reduce your Family Tax Burden?

Generally, taxpayers who own a business are quite conscious about their taxes. Well, for those it is important to know that employing family members who are in a lower tax bracket than the business owners (Usually children or grandchildren) can shift taxable income to them, thus reducing the family’s tax burden.

IRS is well aware of this technique of shifting income to child and is likely to examine any family employment arrangement to make sure the compensation allotted is reasonable.

If it is unreasonable relative to the services performed, it may be recast as income to the business owner.

Advantages of hiring children in the family business:

If business owner deducts reasonable compensation paid to the child and the child receives and reports earned income from compensation which would be often taxed at a lower rate than the business income.
Wages and compensation paid by a sole proprietorship (or partnership, if the parents of the child are the only partners) child who is under age of 18 are exempt from FICA payroll taxes.
Compensation is exempt from FUTA tax if the child of the proprietor (or partner) is under age of 21.
Earned income paid to the child enables the child to fund an IRA contribution.
Child employee may be eligible to participate in employer-sponsored fringe benefits such as health and disability insurance or employer-provided vehicles for business travel.
Child will qualify to make a deductible contribution to a traditional IRA since he is either not covered by an employer retirement plan or his income is beneath a certain level.

EXAMPLE:

Nick hires her 14 years old son George to work in her restaurant, which operates as a sole proprietorship. The restaurant employees earn $10 per hour; George is paid $6 per hour based on the types of services he is able to perform. In 2015, George earned $1700 in wages from the restaurant. His other income is $425 of dividends.

George avoids paying federal income tax on the entire $1700 of wages since he is entitled to a standard (lesser of $6300 or $300 plus his earned income, if it exceeds $1050) and Nick business is entitled to a $1700 deduction for the wages paid to George. In addition, only $125 ($425 – $300) of George’s unearned income is taxed and it is taxed at 0% dividend tax rate. Hence, in either ways it is beneficial to reduce business and family tax burden.

Is Bookkeeping Important to My Business?

by Mounica Kota | May 29, 2016 | News and Social

Is Bookkeeping Important to my Business?

Bookkeeping is comprised of two words “Book” and Keeping” where “Book” means the collection of records and “keeping” is their maintenance. In this sense, Bookkeeping is an activity or process of collections, retention and maintenance of financial records of a business.

This activity of maintaining accurate records cannot be overemphasized.

Bookkeeping is as important as maintaining your business, as this helps us in maintaining regulatory compliance with local governmental bodies and filing an accurate income tax return at the end of every tax period or financial year on time.

This process involves in the formulation of an accurate and appropriate accounting system, which involves recording daily business transactions, and keeping the relevant bill/receipts to substantiate all incomes reported and expenses claimed.

All transactions should be recorded on regular intervals, whether a sale was made, or expense was incurred and paid as it is related to business. Documents such as bills, invoices, bank statements, cheque stubs just to name a few, should be kept as evidence that our records are in fact accurate.

Generally, the same records that are used to prepare financial statements and to monitor the financial position of the business can also be used in the preparation of an income tax return, except in a few cases where the law requires a specific treatment. Therefore, any kind of record keeping can be chosen once it is an appropriate system, suited for your business and it clearly shows the income and expenses for the financial year.

The length of time you should keep a document depends on the action, expense, or event which the document records.

Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.

The period of limitations is the period of time in which you can amend your tax return to claim a credit or refund, or the IRS can assess additional tax.

Why Bookkeeping process plays key role and necessary to the health and wealth of any business.

Bookkeeping process may look like a great time waster to most small business owners, but it is a silent factor that can either make or break any business. This is a great place to start especially for small business owners who desire sustained business growth.

These financial books are very crucial to both small and big business survival.

If you are poised for growth and success, below are few of the books and records should start keeping from now are:

Cash Receipts book

It is a list of all cash received and an explanation of where the funds have come from, example debtor. Again, this is required for each bank account.

Cheques Journal

This is a list of all payments made from your bank account. Again, this will be required for each bank account.

Sales and purchase books

A copy of all customer invoices and vendor invoices listed in books must be maintained. Sales Book helps you to measure the success of your marketing efforts, industry trends. Purchase book helps you to monitor your business outgoings and how much you have spent for each product, material, services, expenses and so on.

Debtors records

These books show at any time what you are owed from your customers and behavior of your customer base for example whether customers are paying payment within credit period.

Creditors Records

These books show at any time what money is owed to your suppliers at any given time.

Payroll records

Records must also be kept regarding the salaries you are paying to your staff. Information must be maintained on how tax is calculated and separate expense claims forms must be retained for these payments.

Bank statements

All bank statements from all your accounts should be maintained and do bank reconciliation to your records at regular intervals.

Save time when you file

When the time comes to file your taxes you need to do the last minute scramble to find all that paperwork or overlooking tax deductions to record this headache of recording transactions as we go.

Separate business and personal expenses

Personal expenses are to be shown separately from business expenses.

The importance of bookkeeping cannot be emphasized enough, but here we will discuss why this process plays key role to the health and wealth for any business.

It helps you to know whether your business is making a profit or not. Having accurate records allows you to trace trends to see what kind of progress your business has been making, i.e it gives you a good understanding of where your business really succeeds and areas where it needs a bit of help.
It helps to forecast the future of your business, set projections and goals for the business, we call it budgeting
It helps in better financial analysis and management, like cash flow management, ratios will never be possible without proper bookkeeping.
It will help small business meet deadlines and help to make timely payments of loans, and other expenses.
It will help to know when to infuse additional funds and increase employee base.It helps to evaluate the business performance to know if
It helps to evaluate the business performance to know if business is stagnant, depreciating or growing. This evaluation helps to strategize and make certain adjustments to business.
It helps to stay organized when dealing with customers and suppliers. It also helps to plan in advance for tax payment and other liabilities.
By maintaining proper bookkeeping records information can be easily accessible at the touch of a button.
When it comes time to sell your business or secure capital to grow your business, being able to thoroughly document your past performance will help your company’s valuat

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