3 Items Every Small Business Owner Must Ask at Tax Timeby Dan Roberts on 03/28/17
It’s that time of year where every business is getting update calls and questions from their tax professional. But if you’ve just recently launched your business, here are 3 items you must know and ask during Tax Season.
1. I work from home – can I use the workspace as a deduction?
According to Craig Fortin, a tax specialist for small businesses, well … maybe. “Is it exclusive use? That's the 1st question to answer. If yes, then you probably can. Don't forget to include all utilities and maintenance costs to maximize the deduction. Also if you have a direct expense such as a built in desk or bookshelf you can take 100% of that expense."
2. What is a direct expense? How is it different than a capital expense?
To answer these questions, says Fortin, you need to look at the period of time or use. “If it's copy paper it's reasonable to "expense" that directly as you would likely use that up within the tax year. Also, it's inexpensive and capitalizing it just wouldn't make sense. If it's furniture,” said Fortin, “that will not be ‘used up’ within the year so that would be capitalized or expensed over its lifetime. IRS has guidelines for these assets. Finally, capital assets often can be expensed using Section 179 of the IRS code. That means even if you would normally depreciate an asset over several years you may be able to expense it directly. This can often provide large, immediate tax savings. For instance one of my clients purchased a piece of equipment in late December for almost $50,000. He was able to deduct the full cost even though the "useful life" according to the IRS is 5 years.
3. What can I do this year to make my tax picture better next year?
Fortin recommends that you ask your accountant that question now as he or she is preparing last year's taxes. “Make sure and be upfront with your plans,” he said, “even [consider] what's going on in your industry and individual business.” He goes on to recommend that you talk about personal plans and concerns too as they are so closely intertwined with your business. “If you are having a hardship bring that up. Don't be afraid to own it. You may be surprised by the wealth of knowledge (or lack thereof) that your accountant has. I spent many years as a banker lending to small business owners before starting me tax practice so I have seen many different companies resolve their problems in ways I may not have thought of.”
If you have just recently launched your business, and you’re overwhelmed with the operational tasks – we can help. Contact us today at 619-252-6518 or click here to request more information.