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Tag: Tax Deductions

  • Why is the cost of hearing aids so expensive in Canada? – MoneySense

    Why is the cost of hearing aids so expensive in Canada? – MoneySense

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    Pretty cool, right? But these advanced hearing aids are not cheap. They’re essentially driven by “mini computers,” and there are costs associated with customization, distribution and professional services, says Glista. 

    At Hotel Dieu Shaver, the independent Niagara Region clinic where I went, non-AI hearing aids range from $3,551 (Phonak L50-R model) to $5,561 (Phonak L90-R model) after the $1,000 Ontario discount has been applied. In contrast, prices for Starkey AI hearing aids range from around $5,000 for the mid-level model (Genesis AI 16) to $7,000 for the highest tech level (Genesis AI 24), again with the $1,000 Ontario discount applied.  

    Yet another high-cost contributor is that, unlike over-the-counter aids that you purchase directly from the manufacturer, today’s digital hearing aids provided through an audiologist are often tweaked through a computer. 

    Using hearing-aid fitting software, an audiologist can select, program and fine-tune the hearing aids. “This includes programming related to sound level and frequency-specific adjustments, based on the person’s hearing loss,” says Glista. “Programming customization also includes other measurements such as real-ear measures to capture how large the person’s ear canal is and ensure that the hearing aids deliver the correct amount of amplification at the eardrum.”

    When you visit a hearing clinic, ask for a detailed breakdown of costs associated with different treatment options, payment options including insurance and government assistance, and follow-up and support services offered. Some hearing health-care providers bundle follow-up maintenance of the hearing aids into their pricing, says Glista. They may also spend time helping patients to develop a listening strategy they can use at work, at home and while participating in hobbies.  

    How much does a hearing test cost?

    Before you get a pair of hearing aids, you’ll want to get your hearing tested at a clinic, which is also where you’ll buy and be fitted for your hearing aids. Some hearing clinics offer hearing tests for free, while others charge about $100. 

    Do insurance and government benefits cover hearing aids?

    Financial support for hearing aids may be available in your province or territory, as part of a broader program for assistive devices and disability supports. For instance, Ontario’s Assistive Devices Program (ADP) pays up to $500 per ear toward the purchase of new hearing aids, for approved applications. (You’ll have to pay for the hearing assessment or find a free one, though—the ADP doesn’t cover that cost.) To qualify, you must be an Ontario resident, have a valid health card, and need the hearing aids for at least six months. Income isn’t a consideration for the ADP.

    So, if you’re an Ontario resident and you buy a $5,000 pair of hearing aids, the audiologist will deduct the $1,000 paid for by the ADP, bringing your cost to $4,000. (There’s no sales tax on hearing aids.) If you’re in a 20% marginal income tax bracket, after claiming the balance you paid as a medical expense at tax time, your end cost is reduced to $3,200. Note, however, that for the 2024 tax year, you can only claim eligible medical expenses minus 3% of your net income or $2,759 (whichever is less)—so, some or all of your medical expenses save no tax. (Learn more about claiming medical expenses.)

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    Mark Douglas Wessel

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  • How the $10-a-day child care program can affect your taxes – MoneySense

    How the $10-a-day child care program can affect your taxes – MoneySense

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    Understanding the tax impact of more affordable care

    Here’s the problem: your child-care expense deduction will decrease if you pay less to your child-care provider. As a result, your taxes payable will likely increase, depending on your income level. A reduced child-care expense deduction will also increase the net income on your tax return. This is the figure your refundable tax credits, like the Canada Child Benefit (CCB) are based on. These important monthly benefits, therefore, could shrink.  

    To understand this fully, take a look your tax return from last year. The child-care expense used as a deduction is found on line 21400 after being calculated on form T778. Net income is at line 23600. That important line is used for government “income testing” for a number of provisions on the return, including refundable tax credits like the Canada Child Benefit, the Canada Worker’s Benefit and the GST/HST Credit. It will also determine how much OAS (Old Age Security) seniors will get, or whether employment insurance (EI) benefits will be clawed back. Just as important, non-refundable tax credits, like the spousal amount, may be affected. 

    When your net income goes up because of your lower child-care expenses, these benefits are reduced, unfortunately.  

    Invest to offset a reduced net income

    There is some good news for astute investors, howeve,. To keep your family’s net income low despite the reduction in your child-care expense deduction, make an RRSP (registered retirement savings plan) contribution. The resulting RRSP tax deduction reduces your net income and your taxable income and, in the process, works to increase income-tested refundable and non-refundable tax credits too! Check out how much RRSP room you have on your notice of assessment from the Canada Revenue Agency (CRA) to make the contribution. 

    The same effect occurs if you can claim a deduction for contributions made to the first home savings account (FHSA). An annual deduction of up to $8,000 may be claimable. 

    Maximize your child-care claim

    The final way to shore up the tax benefits from your child-care expenses is to make sure you claim all of them and to your best tax advantage. 

    Child-care expenses are often missed entirely by parents. If this has happened to you, did you know you can go back and adjust prior filed returns to make that claim and receive the tax-credit benefits and tax refunds you missed? Especially if you are a first-time filer, be warned, however, that the claim for child care is complex and often audited. Be prepared to provide receipts to justify your claim.

    It’s also important to know that the spouse with the lower income is the one that must claim child-care expenses, except in certain defined circumstances: when the lower earner is unable to care for the children due to a mental or physical infirmity, is in full time attendance at a qualifying school, or in hospital or incarcerated for at least two weeks, for example. Another exception is when there is a breakdown in the conjugal relationship for at least 90 days, but a reconciliation takes place within the first 60 days of the year. The usual $5,000, $8,000 or $11,000 maximum amounts claimable by the higher earner may be reduced, however, with a maximum weekly calculation.  

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    Evelyn Jacks, RWM, MFA, MFA-P, FDFS

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  • 6 Steps to Make Tax Season As Painless as Possible | Entrepreneur

    6 Steps to Make Tax Season As Painless as Possible | Entrepreneur

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    Opinions expressed by Entrepreneur contributors are their own.

    Q1 marks the beginning of a critical time for businesses — tax season. As you know, it can be a busy and stressful time of year for most businesses, regardless of their age, industry or profitability. No one wants any surprises after they file, so it’s important to start preparing sooner rather than later.

    By planning ahead, you’ll ensure your business is organized and ready to file on time. You may never enjoy tax season, but there are ways to make it as painless as possible. Here are six steps to ensure your business is ready — come April 15.

    Related: These 6 Tax Tips Will Help Make Tax Season Easy for Your Business

    1. Prepare throughout the year

    Getting ready for tax season starts long before you’re ready to file your tax return — you should be preparing throughout the year. This starts with having an accounting system in place where you can keep track of your finances.

    There are tons of free and inexpensive options when it comes to accounting software, including QuickBooks, Xero and ZohoBooks. The software is more comprehensive than anything you can do with an Excel spreadsheet, and most give you the option to collaborate with your accountant.

    In addition, businesses should be paying their quarterly tax obligations throughout the year. The exact filing schedule will vary depending on your business entity. Once you get on a schedule, you’ll likely find that paying your taxes as you go will make your life easier and help you avoid any fines or penalties.

    2. Make sure your books are balanced

    You don’t want to run into tax problems because of mistakes or missing transactions. Make sure all of your business transactions are recorded and accurately categorized. Take the time to reconcile your accounts and ensure that your financial software matches what your bank account says.

    You should also make sure that you’re separating your personal and business transactions. Otherwise, you’re going to create a lot of frustration for yourself.

    3. Gather your paperwork

    Start gathering your paperwork together at the beginning of the year. You’ll need to provide receipts for any deductions you took in case your business gets audited. It’s a good idea to digitize your receipts, so you don’t have to worry about anything getting lost or damaged.

    You’ll also need the following documentation to bring to your accountant:

    If you have employees, you’re required to file W-2s with the Social Security Administration by Jan. 31.

    Related: 5 Steps to Tax Season Success

    4. See what tax credits you qualify for

    Next, you want to see what kind of tax credits your business qualifies for. Tax deductions reduce your taxable income, while tax credits reduce your total tax bill. You can look for industry-specific tax credits or see if there are any state-specific tax credits you qualify for.

    One of the most advantageous tax deductions for financing is Section 179, which allows you to write off nearly the entire value of an equipment purchase on the current year’s tax return.

    The IRS provides information on its website about available tax credits and eligibility requirements. It’s a good idea to work with a tax professional to ensure your business actually qualifies for any credits you identify.

    5. Work with an accountant

    If you’re in the early stages of building your business, you may be tempted to file your taxes on your own to save money. However, the short-term benefits often lead to longer-term problems, and most entrepreneurs find more benefits in working with an accountant.

    Tax laws and regulations are constantly changing, and it’s impossible for the average business owner to stay on top of these changes. Accountants understand all of the relevant tax laws and filing requirements and can help you minimize your tax liability.

    Plus, filing your taxes can be time-consuming and tedious, especially if you don’t know what you’re doing. Using an accountant will save you time and help you avoid costly mistakes. Plus, you’ll have peace of mind knowing that your business taxes are filed accurately and on time.

    The upside of working with an accountant extends well beyond tax season; Your accountant can work with you throughout the year to develop strategies to minimize your tax burden.

    Related: 3 Ways to Save Money on Taxes That Most Entrepreneurs Miss

    6. File early if you can

    April 15 is commonly thought of as Tax Day, but the exact filing deadline depends on your business entity. Sole proprietors, single-member LLCs, and corporations that ended their year on Dec. 31 have to file taxes by April 15.

    But if you’re a partnership, multi-member LLC, or S-Corp filing Form 1120-S, you’re required to file by March 15. The IRS begins accepting tax returns beginning in mid to late January, so it’s a good idea to file early if you can.

    By filing early, you’ll avoid processing delays with the IRS and save yourself the stress of attempting to file at the last minute. If you wait too long to get the process started, you may have a hard time getting in with your accountant.

    Scheduling an appointment with your tax pro early ensures you can file on time. Otherwise, you may have to request an extension.

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    Joseph Camberato

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  • Free Webinar | March 22: What Entrepreneurs Should Consider Writing Off | Entrepreneur

    Free Webinar | March 22: What Entrepreneurs Should Consider Writing Off | Entrepreneur

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    Tax season is here (hooray?) and to make sure that you don’t leave a single penny on the table, we have called in our resident tax experts to walk you through the specifics of write-offs for entrepreneurs. Whether you are a full-time small business owner or making extra money with a side hustle, this webinar is essential to making sure you wind up with the best tax bill or refund possible.

    Mark J. Kohler — author, CPA, attorney, and cohost of the podcast “Refresh Your Wealth” — and Mat Sorenson — author, attorney, and CEO of Directed IRA & Directed Trust Company — have been at this for years, and these self-described “tax geeks” have all of the answers to your write-off questions. During this webinar, they’ll teach you:

    • Commonly missed home office deductions
    • Auto and travel write-offs
    • Changes to meals and entertainment rules
    • Red flags that can trigger audits
    • Changing your entity (LLC, S-corp) structure to save taxes
    • And more!

    This free webinar can save you a lot of dough on Tax Day — don’t miss it! Register now and join us on March 22nd at 3:00 PM ET.

    About the Speakers:

    Entrepreneur Press author Mark J. Kohler, CPA, attorney, co-host of the Podcast “Refresh Your Wealth”, and a senior partner at both the law firm KKOS Lawyers and the accounting firm K&E CPAs. Kohler is also the author of “The Tax and Legal Playbook, 2nd Edition”, and “The Business Owner’s Guide to Financial Freedom.

    Mat Sorensen is an attorney, CEO, author, and podcast host. He is the CEO of Directed IRA & Directed Trust Company, a leading company in the self-directed IRA and 401k industry and a partner in the business and tax law firm of KKOS Lawyers. He is the author of The Self-Directed IRA Handbook.

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    Entrepreneur Staff

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  • Money-Saving Tips Entrepreneurs Often Miss in Tax Filing Season

    Money-Saving Tips Entrepreneurs Often Miss in Tax Filing Season

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    Opinions expressed by Entrepreneur contributors are their own.

    There is one time a year that requires a detailed level of attention for a business owner, no matter the size of your business.

    When tax season comes around, entrepreneurs initiate survival mode sometime between January and April 15 and look for every way to get a few more deductions.

    Bookkeeping, tax filing, audits and deductions will assist in keeping a good relationship with the IRS, as well as supporting good habits for your business; however, because getting everything just right can be overwhelming, it is easy to miss important things and leave money on the table that would be better suited in your pocket.

    Tax season reaches beyond the immediate tax return and can have a lasting impact five or even 10 years down the road. While you can make certain deductions one year that will benefit you, as your business grows, having a different strategy is in your best interest.

    This requires experience, a little patience and a willingness to learn from the mistakes you made.

    There are three very important things every business owner should be paying attention to when you file your yearly taxes to ensure you are getting the most out of your return. These examples can also create strong business habits that will help you create a long-term operation.

    Related: 75 Items You May Be Able to Deduct from Your Taxes

    The home office deduction

    While it may be more convenient to work from home, as well as being fiscally cheaper, it may make you a target for audits.

    Since you can deduct items like the square footage of your home office or short trips to the office supply store, it is crucial that you have the documentation to verify everything you list as a deduction.

    With less obvious options like the Augusta Rule — in which you can rent your home out to business events and summit meetings — you have more options for write-offs and every purchase adds up. Nearly every purchase that you make for your business is considered tax-deductible as it relates to your business.

    Although not every person who works from home will be audited, if you were to go through a formal audit and you do not have proper documentation for your deduction claims, you can have those deductions revoked.

    If your business is growing quickly and producing high capital, you may want to consider moving your business into an office lease to keep your home and business separate.

    This will be to your advantage when you are looking for clear defining factors in listing deductions, but if that’s not your cup of tea as an entrepreneur and you like the home office as a center for operations, make sure you keep proper documentation of your home office to ensure your write-off isn’t arguable in the case of an audit.

    Related: These 6 Tax Tips Will Help Make Tax Season Easy for Your Business

    Utilize deductions in the ways that benefit you the most

    Being honest with your deductions is a good practice to have, making sure that you are not putting forth false information to save a few bucks.

    One thing that many people do not consider is overusing deductions that are available. It can be quite easy to get into a rhythm of using the same tactics every year, but this can cost you in the long run.

    Let’s say you were to buy a new vehicle every year or two for your business. It could be a worthwhile plan for the first couple of filings that will help ease some of the financial pressure on a young business.

    However, this can turn into abuse — not from a legal standpoint, but in the metric that vehicles depreciating over time will cost you more than the deduction would save.

    Working with a professional accountant to have a good roadmap to how your deductions will affect you not only this year, but in future filings, is a good thing to consider. This will help with the guidance of what you should be used as a deduction and what would be better to leave behind.

    Map your deductions out accordingly because they can save you a lot of headaches and money 10 years from now.

    Related: The IRS Hates Telling Entrepreneurs Anything About Taxes. Here’s How You Can Find Out What They’re Thinking.

    Categorize your business properly

    It is a necessary task to “list” your business regardless of where you operate. That being said, there are four options upfront as to how you list your business by definition and how your business is classified can save you or cost you money.

    The four business classifications are:

    • LLC: A limited liability company.

    • S corp: S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

    • C corp: A C corporation is a legal structure for a corporation in which the owners, or shareholders, are taxed separately from the entity.

    • Sole proprietor: A person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses.

    With all of these options, it is imperative to either know what you are doing or work with someone who does to register your business accordingly in the state you own a business.

    Related: 14 Tax Deductions Your Small Business Might Be Overlooking

    It can be misleading as to which definition will be the best to suit your needs; however, if you do it correctly, it can create a good foundation that will benefit you.

    There can be many options to choose from when you are looking for deductions within your business, whether you are working from home or in an office space, under an LLC, sole proprietor or S corp. If you are unfamiliar with how to navigate this information, it is best to hire an accountant/bookkeeper to help guide you through.

    While there are many “deductions” you can apply to your business, being aware of the things that will benefit you now and in the long run can relieve stress when you need it most.

    Utilize every deduction you can to bring the cost of running your business down like materials, office supplies, office space, vehicles, advertising, etc., then consider what you will still be able to use in the big picture by measuring your growth against what you are saving this year.

    Documentation is one of the most important things you can do, so if you don’t have the time to be on top of it, hire a competent bookkeeper.

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    Kale Goodman

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  • 14 Tax Deductions Your Small Business Might Be Overlooking

    14 Tax Deductions Your Small Business Might Be Overlooking

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    Opinions expressed by Entrepreneur contributors are their own.

    While there are other benefits, one of the most important reasons you’re in business is to make money. And it stands to reason that if you’re in business, you’d like to keep as much of what you generate as possible. That could be why so many people hate paying taxes.

    But if you’re doing your bookkeeping correctly, you’ll find there are ways to keep some of the value your business generates. All you want to do is pay your fair share. And keep what’s left to run a successful small business or grow that business into something even bigger.

    Above all, remember that you pay taxes on your profit, and your profit is your income minus your ordinary expenses; you report this to the IRS every year on Schedule C. So when you sit down to do your taxes or hand your information over to your tax accountant, you should be sure you’ve tracked every single business expense.

    Related: These Are the Top Tax Filing Mistakes Made by Small Business Owners (and How to Avoid Them)

    What deductions are obvious? Anything you buy that directly affects your business and is used for your business. If you’re in construction, it’s the cost of your equipment and raw materials. If you’re a web designer, it’s the software you use. Look at Schedule C and you’ll see the obvious ones: advertising, office expenses, licenses, utilities and more.

    You need to be careful defining some expenses, especially if you’re running your business out of your home. Yes, you can deduct the part of your home that you use exclusively and regularly for business. But if you work weekdays at your home office and watch football from it on Sunday, it’s not exclusive to your business. If you only do your month-end bookkeeping in it — even if that’s all you do in it — once-a-month office use is not considered regular use.

    But when you’re assembling your receipts or downloading expense data from your small business financial management system to provide to your tax accountant, there are certainly some expenses that you might not have thought to include. There may be other expenses you claim that are not eligible deductions. If filed in error, these mistakes could cost you fines — or worse — if you’ve deducted more than you should have or are permitted to.

    Related: Here’s Why It Pays to Track Every Tiny Business Expense

    Tax deductions you might be missing

    While Schedule C enumerates 21 types of expenses, you still might miss some perfectly legal deductions. For instance:

    1. Repairs or alterations to your home office: If you’re there all the time, then expenses like painting, re-flooring and brighter light fixtures would be deductible. Having a cleaning service for your office would be as well. The desk and file cabinets you use would also be deductible — as would the repair to the wall after your desk chair banged it up.
    2. Education: Any education or training related to what you do to earn money is deductible. Many professionals require professional development courses to keep their licenses current. Others take classes to learn how to improve their business. If it’s relevant, it’s deductible.
    3. Local travel: When you visit a client and pay to park in the lot across the street, that parking fee is deductible. If you take a toll bridge to cross the river to visit your client’s office, that bridge toll is deductible. And so is your mileage, assuming your client doesn’t reimburse you for those costs.
    4. Your website: A website is a must-have to find and connect with new and existing customers. All related costs can be deductible — paying the person who creates it for you, paying for the website to be hosted, paying for its security, paying for the pictures and copy you post to it, etc. It’s all part of advertising, which is more than paying to run a small ad on your local radio or television station.
    5. Startup costs: If this is your first year, the legal and professional fees you pay to complete and file your paperwork are deductible. Fees above the $5,000 first-year limit can be amortized over the succeeding 15 years.
    6. Research and development: If you’re creating a new product, the expenses relevant to bringing that product to market are deductible.
    7. Interest on debts: A loan you take for business purposes is tax-deductible as long as it’s an arms-length transaction. Keep track of the interest costs so you can deduct them at tax time. Your business credit card interest is also deductible.
    8. Industry publication subscriptions: Every trade has a publication that keeps its practitioners current, from Advertising Age to Chain Store Age to Industry Week. Online subscriptions are also deductible.
    9. Retirement savings for self-employed business owners: These include self-employed simplified employee pension (SEP) plans, solo 401(k) plans and Keogh or HR-10 plans.
    10. Business gifts: There’s a limit of $25 per person per year for gifts to clients. But, 100 percent of the cost of employee meals at events such as holiday parties and company picnics is deductible.
    11. Perks for your employees: Coffee in the office? That candy bowl at the front desk? 100 percent deductible. Lunch brought into the office can be fully deductible, while taking the team out for lunch is only 50 percent deductible.
    12. Club or organization membership fees: The organization must be business- or community-related, such as a chamber of commerce, trade association or a professional organization.
    13. Lawn mowing: If you receive clients at your home office, keeping the entrance to your house clean and presentable may be deductible.
    14. Childcare for solo professionals: If you’re a parent and have a home office but you need to meet a client outside the home, childcare is deductible. If you’re leaving the house to go shopping, it’s not.

    Related: 75 Items You May Be Able to Deduct from Your Taxes

    Just remember, you can’t deduct what you aren’t tracking. Prior to the 1980s, you didn’t have many options — record-keeping systems included paper, pencils and file cabinets. The late 20th century made spreadsheets an option, which required ensuring formulas were put into the correct cells as well as remembering where the related backup documentation was saved.

    The modern era has given way to even better ways of tracking information, and distilling years of accounting and bookkeeping know-how into an easy-to-use software platform. Now you can stay on top of all of the purchase orders, invoices and receipts you’ll need as a backup to your accounting records. And, have them all safe in a cloud-based system. Files, images, emails and scanned paper documents can be captured from a mobile device or a computer and stored safely online. You can categorize all transactions easily by account category and relevant tax schedule for subsequent reporting and filing.

    These systems can be accessed from anywhere your business takes you, from home office to factory floor to out-of-state business pitch. You can pull them up when needed (such as for a loan application, a meeting with your accountant or deciding on financing a business improvement).

    Consider financial document management solutions that can also automatically extract data from these documents. Instead of keying these numbers into a spreadsheet or paying your tax accountant to do this manual work, systems like Neat automatically feed financial data to accounting and tax software. These systems can make it easier to account for all of your business expenses — the obvious ones and those that can be often overlooked.

    Related: The Most Forgotten Tax Deductions Business Owners Should Take

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    Jim Conroy

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  • Act Now on Your Year-End Tax Strategy to Save in 2023

    Act Now on Your Year-End Tax Strategy to Save in 2023

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    Opinions expressed by Entrepreneur contributors are their own.

    Come January 3, a new Congress will convene in Washington, DC, setting the stage for potential tax changes that could impact small and medium-sized businesses. With that in mind, it’s important for businesses to engage in certain tax planning strategies and to take advantage of tax credits that will soon expire or be phased out.

    The Employee Retention Credit (ERC) is one such credit. Created in 2020 to provide economic relief during the Covid-19 pandemic, the ERC lets businesses claim thousands of dollars in refundable tax credits to compensate for losses experienced in 2020 and 2021 while they continued to pay employees. Businesses subject to a full or partial shutdown or significant decline in gross receipts can qualify.

    Many small and midsize businesses I know are eligible for two quarters or more of credits, which can range as high as $7,000 per quarter per employee in 2020, with higher per-employee limits in 2021. But the time frame for claiming this credit is shrinking. Start planning now.

    Businesses have just three years from the time they filed their 2020 and 2021 quarterly tax returns to claim the credit. Even if you received funds from the Paycheck Protection Program (PPP) previously you can qualify for the ERC credit, but you’ll need time to gather all the necessary documentation before filing the required amended return.

    Related article: How to Obtain the Employee Retention Tax Credit (ERTC) Under the Second Round of Covid Relief

    Beware of companies advertising huge ERC payouts that are “too good to be true,” as the IRS noted in a special warning. The agency further cautioned that “improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.”

    Know how to find someone who can help you if a problem arises. I had a client who signed a contract with a firm that promised an ERC credit twice as large as what we projected along with lifetime audit protection, but the firm was cagey about how to handle a prospective audit and did not list addresses and phone numbers. A red flag for sure, and a reminder that taxpayers should never get too greedy.

    The importance of tax planning

    How many business owners can honestly say their accountants are advising them on tax planning, like the ERC benefit, rather than merely doing their taxes? Is yours building a tax-strategy foundation that generates recurring savings year after year?

    Take the initiative and ask your accountant what plans they have in place to generate savings year in and year out, plus what strategies they’re using to accomplish that.

    Don’t make the mistake of merely asking your accountant how you can save on taxes just before the year’s end. If you do, you may be advised to buy a vehicle for your business because the cost can be fully written off using a bonus depreciation. This is not an example of a great, forward-thinking tax strategy. And that particular deduction, by the way, will lose 20% of its value in each of the next four years, starting in 2023. It’ll be completely phased out by 2027.

    Related article: How to Give Yourself a Tax Cut

    Accountants should have a plethora of strategies to help small and midsize businesses and their owners save on taxes. For example, ask yours about research and development credits, or credits for hiring veterans and disabled individuals and members of other groups that the government has identified as facing employment barriers.

    How to avoid an audit

    It’s more important than ever to use only legal ways to limit your tax liability. Here’s a list of some dos and don’ts:

    • Don’t put your family vacation on your company’s books. If there is a business purpose for a partial business/family trip and that purpose constitutes more than 50% of the trip, document it and proportionally deduct your costs. Include notes about the purpose of the travel, your itinerary, the agendas of meetings and conferences, whom you met with, etc. The IRS has heightened record-keeping requirements for travel deductions.
    • Keep original receipts, not just credit card statements. Taxpayers often assume a credit card statement constitutes a receipt. It does not. Your expense items on a credit card receipt only will likely be denied.
    • Get in a habit of documenting all relevant expenses while you’re incurring them; and consider assigning an employee for that purpose or use technology. You’ve got to document the business reasons for the deductions claimed because there are heightened documentation requirements for business travel and for meals. You probably won’t remember all these necessary details if the IRS audits you two or three years after an event has taken place. If you fail to document actual expenses, you should deduct IRS-published travel per diems by city.
    • Don’t pay personal expenses through your company. Write a check to yourself from the company for a legitimate reason like a salary, wages or distribution. Then pay personal bills for your mortgage and electric bill out of your checkbook, not the company’s.

    Related article: The IRS Hates Telling Entrepreneurs Anything About Taxes.

    The messages are slowly sinking in. Four clients so far have told me they’ve completely revamped their internal processes to take better records. They’re spending the time to do this now because they understand it could be riskier in the future.

    Nobody knows what tax changes, if any, are in store, but there are changes already on the books that business owners should be aware of, including benefits that are slated to disappear. Act now before it’s too late.

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    Bruce Willey

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