Section 179 of the IRS tax code permits businesses to subtract the entire purchase price of qualifying equipment and/or software purchased or financed during the tax year whether it is new or used from their gross income potentially providing the company with greater tax relief. The Section 179 deduction has also been incorporated in many of the recent Stimulus Acts and Congressional Tax Bills.
For most small businesses Section 179 allows for the entire cost of qualifying equipment to be eligible and written-off on the 2020 tax return (up to $1,040,000). Section 179 caps the total amount that can be written off at $1,040,000, and the equipment purchase price at $2,590,000 for the 2020 tax year. The deduction is eliminated once $3,630,000 in purchases is reached, an amount usually applicable to small and medium-sized businesses in a calendar year.
Does my business qualify for Section 179 Deductions?
All business entities that purchase, finance, and/or lease new or used business equipment and place it into service during tax year 2020 should qualify for the Section 179 deduction presuming they are within the spending limits. Although $1,040,000 of assets can be expensed that amount phases out dollar for dollar when $2,590,000 of qualified assets are placed in service and used for more than 50% of the time toward business purposes to qualify this deduction.
What Happened to Bonus Depreciation?
Bonus depreciation has been useful to qualifying large business entities but was not always available as a deduction every year while restricting the deduction to include only new equipment. As of this year not only is bonus depreciation available, but it now allows deductions of used inventory beyond the Section 179 spending caps at 100% until 2026.
Even businesses with net losses or no taxable profits still qualify to deduct some of their equipment costs and carry their losses forward under Section 179 and with Bonus Depreciation deductions.
When applying these provisions, Section 179 is generally taken first, followed by Bonus Depreciation – unless the business had no taxable profit, because the unprofitable business is allowed to carry the loss forward to future years.
For basic guidelines regarding when and how to apply these provisions, which forms are required, to evaluate your equipment purchases for deductibility, or to discuss your tax planning matters please refer to the contact page at JeffreyLevine.Solutions to schedule your free consultation. I am looking forward to hearing from you.
A business owner should be clear on the types of taxes they are responsible for. Primarily, business structure determines what types of taxes will be paid. Here is a synopsis of four primary taxes that may have to be reconciled at different stages of the year:
Income tax is used to bill individuals for their wages or investment income, in proportion to their level of net income. Partnerships file an information return, while all other businesses must file annual returns.
Employers have the following tax obligations:
• Social security and Medicare taxes
• Federal income tax withholding from employee wages
• Federal unemployment tax (FUTA)
Employers must accurately deposit and report federal income taxes, federal unemployment taxes, social security taxes, and Medicare taxes. Employers must select between two deposit schedules at the beginning of every calendar year. They can either deposit federal taxes monthly or semi-weekly. FUTA Tax deposits are normally due within the month after each quarter. There are also quarterly reporting requirements for federal income taxes, social security, and Medicare taxes.
Self Employment Tax
Self–employment tax, or SE tax, is a Social Security and Medicare tax paid by individuals who work for themselves or own their own business.
Excise taxes are particular to goods and products like petroleum, alcohol, tobacco, firearms but there is a broad range of categories and forms that encompass the qualifications for submitting excise tax to the agency of authority.
Remember a company with up to date and consistent tax preparation is much more valuable in case your long term plans are to sell your business. In order to avoid mistakes and meet critical deadlines, contact a tax consultant early on to secure compliance with the agencies involved.
If you require immediate assistance visit my website at JeffreyLevine.Solutions to schedule a free consultation regarding your tax concerns.
When you have a business, there needs to be a complete understanding of the tax authorities your entity is entitled to pay. Being uninformed can cost you time, money, or even your business. In addition to being accountable to the IRS for income taxes, your district, locality, county, and state agencies may require sales, property, payroll, local, excise, self-employment, and other specialty taxes like unemployment.”
Tax returns can be complicated for those with minimum experience, so it is extremely important to consult with a professional to prevent errors, keep costs low, and avoid the audit process.
Proper tax planning allows you and your team to consider quarterly and annual potential tax commitments and requirements, so the company claims the proper deductions that it is eligible for and prevents commingling. An informed business tax planner supports the bottom line so the company’s attention can be geared toward producing quality products, developing integral relationships, and implementing marketing strategies that boost and support the business’ objectives.
With the numerous tasks that come with operating a business, it’s not astonishing that business taxes aren’t at the top of the list of priorities for many proprietors. You can avoid making common tax mistakes by allowing a professional in tax planning to provide expertise and tax advice that prioritizes your company’s financial and compliance needs.
Contact me for your virtual or hands-on business tax consultation at JeffreyLevine.Solutions today!
This corporate tax preparation fundamental breakdown offers seventeen straightforward tips on handling your business taxes while remaining in compliance with the rules or regulations from the IRS, state and local tax authorities.
1. Mark your calendar for various tax-related actions
• If your small business is set up as an S corporation or a partnership, your tax return is generally due on March 15.
• Small businesses that are sole proprietorships, single-member limited liability companies, or C corporations have their tax deadline on April 15 , usually the same as individual tax returns.
2. Retrieve all tax-related forms relevant to your corporate structure
• Sole proprietorships use Form 1040, especially Schedule C, to report business income and expenses.
• C corporations file their taxes on Form 1120.
• S corporations use a special Form 1120-S from the IRS.
• Partnerships must complete Form 1065 and then provide individual partner information on Schedule K-1.
3. Gather all income-related business records for the relevant tax year
Some records may include:
• Gross receipts from sales of goods or services.
• Returns, or refund invoices
• Documentation regarding any interest or investment income accrued by the company
4. Collect documentation for business-related expenditures including:
• Receipts for insurance, overhead costs, supplies, utilities, and professional fees
• Documentation regarding home office deduction, transportation, meals, entertainment, and business health insurance expenses.
5. Send out any required information returns, and ensure you receive the ones you need
• Form W-2 for employees or Form 1099-MISC for independent contractors are required to be sent out by a specific deadline
• paying interest on loans, rent on rental property, or fees for services provided by outside professionals may also need to be distributed, requested, or recorded
6. File any extensions before the due date to avoid interests and penalties.
• Business set up as sole proprietors, single-member LLCs, and C corporations can receive extensions for up to six month through Oct. 15.• Extensions for partnerships and S corporations are up through Sept. 15.
• State and federal tax rules differ, so both agencies should be consulted for clarification
7. Compare the previous years’ taxes with the current year to determine if you are reaching your company’s tax planning goals
• Avoid overpaying taxes as your company can accrue debt later from the lack of liquidity
• Avoid underpaying as that can result in unnecessary interest payments and penalties fees
Deductions to Completely Avoid or That May Not Be Counted as Deductible
8. The small business loan can’t be deducted, but the purchases can be.
9. Clothing that is worn outside of the scope of work
10. Contributing your time to charity
11. Membership Dues
12. Accreditation Fees
13. Federal Tax Payments
14. Life and Disability Insurance Premiums
16. Restitutions or Court Fees
17. Your salary
Every business requires a high-level look at its tax picture to create the supporting schedules and attachments required to remain in compliance with state and federal tax regulations.
To discuss your business’s complex set of tax preparation or planning needs contact Jeffrey Levine, Tax Planner today for a consultation.
As a serial entrepreneur, business consultant, and author I have seen many corporations come and go. Success in any business endeavor means you as the owner must have concrete objectives in place that lead to an exit strategy your core team is aware of. Most company’s business plans may cover five or more years of operations strategy while neglecting goals that can increase their scale thereby leveraging them for profitable mergers and acquisitions. If you want your business to succeed, focus on creating a company that can withstand the valuation process and sell profitably.
Mergers, acquisitions, and corporate restructuring occur every day for a variety of reasons and have become the norm of doing business. The choice to sell your business may be one of the most important financial decisions you will ever make. Scaling for growth is about considering capacity and capability while determining whether your systems, technology, infrastructure or team can accommodate internal advancements or identifying whether third parties must be engaged to handle incorporating more efficiency in your company’s logistical functions.
The ultimate objective behind building your business to sell is to create a cycle of continuous, data-driven improvement focusing specifically on your customer or client experiences. When a business is sold, what buyers usually purchase are repeatable systems, people, skills, and databases. Here I’d like to share key questions that owners should consider, analyze or incorporate into their business model immediately:
Is my core team clear on the company’s core values?
Values guide the norms and behaviors of staff and they, in turn, permeate these principles to customers and clients. Be clear that your team members embrace the company’s culture and are motivated by the overall vision and mission as that enhances productivity thus contributing to an increase in profits.
Does your company have repeatable systems?
Repeatable systems are tried and tested formulas being implemented that reflect your brands’ adaptability to change. An effective repeatable system is one that merges customer and employee feedback to incorporate innovations and improvements quickly while eliminating external threats like direct competition. Another one may be a tracking portal that reorders inventory from a supplier when the product is at a certain threshold. Any system your company incorporates to make data management easier almost always makes a company attractive for purchase.
Does my company have an easily understood differentiation from similar businesses?
There is nothing wrong with creating a quality product or service in a well-established market as it will be much easier to land sales. Be crystal clear early on regarding your distinct point of difference to remain at a vantage point against competitors. Remember, it’s not about adapting to fad, but being responsive to changes without compromising the mission.
Do we keep accurate thorough financials?
Financial statements are a barometer of your company’s success. Keeping track of these statements aid with itemizing your income, cash flow, capital expenditures, balance sheets, and more. These statements determine if you can secure lines of credit, calculate how much taxes you will pay or can reduce, eliminate mistakes in calculations, and build trust with vendors, lenders, and ultimately investors.
Does my company depend too much on one person or one function?
You need to immediately consider if you have one employee who handles multiple vital activities in the company especially if you have more than ten employees and assign those duties to qualifying parties. As well, review your vendors to make sure that your goods aren’t all coming from one source with backups in place ready to produce if required. Also, evaluate whether output expectations can be streamlined to maximize outputs in case of technological restraints.
There are many factors to consider when preparing your business whether a startup or existing for a profitable sell. For more than 20 years I have worked exclusively with small, medium, and large business owners helping them to not just take care of their bookkeeping, payroll, taxes, financial planning, and financial statements, but directly assisting with the development plan that prepares the business for profitable purchase when required. No two businesses have the same financial reporting and as a business owner I understand how sending out invoices, making payroll, and paying bills take precedence in day to day functions while reviewing, analyzing, and reconciling ongoing business strategies and financials can easily get pushed aside. I review the variables helping you or your team decide what’s best for your business moving forward as having access to accurate, organized financial data is critical for making a maximum profit on your business’ sales transaction.
Reach out to me at JeffreyLevine.Solutions to discuss your company’s objectives to build your business to sell.
Jeffrey Levine, Tax Planner