Simple Answers to Questions About Using Your Vehicle for Business


Using a Vehicle for Business: Q&A

IRS rules and exceptions abound, but there are some questions we can answer simply.

Next to your home, your car is probably the most expensive investment you make. And the costs of paying for and maintaining it can be considerable. Can you recoup some of your investment by claiming vehicle expenses on your tax return?

Sometimes. The IRS has many restrictions on the business use of a vehicle, and those restrictions have many exceptions. Better to know these upfront than to have to correct a tax return after you’ve filed it. Here are some questions and answers that may help you decide whether you’re eligible.

How does the IRS identify a “vehicle”?

A car, van, pickup, or panel truck.

What are transportation expenses?

These are “ordinary and necessary expenses” incurred when you, for example:

  • Visit customers,
  • Attend a business meeting held at a location other than your regular workplace, or
  • Go from home to a temporary workplace that is not your company’s principal location.

The daily commute to and from your regular office is not deductible. The IRS considers this personal commuting expenses.

What if I’m on an overnight business trip away from home?

The IRS considers these travel expenses, and they’re reported differently. Your car expense deduction, though, is calculated the same way in both situations.

What if I use my car for both business and personal purposes?

You’ll calculate the expenses incurred for each by determining how many miles you drive for business and how many you drive for personal reasons.

I work in a home office. Can I deduct any driving expenses?

Yes, you can deduct the cost of driving to “another work location in the same trade or business.”

How do I calculate my deductible expenses?

There are two options. Use the standard mileage rate. You are required to use this method for the first year you use the vehicle for business purposes. After that initial year, you can choose between the standard mileage rate and actual car expenses. These include depreciation, oil and gas, insurance, and repairs.

Depreciation? Isn’t that difficult to calculate?

Yes, especially for cars. If you plan to take this kind of deduction, please let us handle your tax preparation for you. Depreciation is very, very complex, and sometimes requires more than one calculation method.

Can I take a Section 179 deduction for my vehicle?

Possibly, if you use the car for business more than 50 percent of the time — and only for the first year.

What kind of vehicle expense records do I need to maintain?

You know the drill here. If the IRS ever wants to examine your return, it will expect evidence like receipts, cancelled checks, and credit card statements. You’ll need to document the date and location where you incurred the expense. You’ll need accurate mileage records (miles driven, purpose of trip, etc.).

These requirements scream for some kind of organized computer log or written diary, along with a safe place for any paper receipts, bills, etc. There are numerous mobile apps that can help you with this task. We can steer you in the right direction.

If you’re planning to deduct car expenses, it’s important that you keep careful paper or electronic records.

Where will I be reporting transportation expenses?

If you are self-employed, you will report business-related vehicle expenses on Schedule C or Schedule C-EZ (Form 1040). Farmers should use Schedule F (Form 1040). You’ll also want to complete a Form 4562, which is used to report depreciation and the Section 179 deduction.

Maintaining accurate records for car and truck expenses is time consuming and detail intensive. And that’s once you understand all of the IRS’s rules and exceptions surrounding this deduction. To avoid having to fix completed tax documents that the IRS has questioned, talk to us before you put a vehicle into business use. We’ll be happy to evaluate your transportation situation and guide you through the process.

Tax-Saving Tips

Tax-Saving Tips

October 2017

 

Update on Health Savings Accounts (HSAs)

Health savings accounts (HSAs) are now more popular than ever. According to a recent survey, the number of HSAs has surpassed 21 million, and the accounts now hold about $42.7 billion in assets.

 

Here’s a very tight summary of how the HSA works for you:

 

  • Deduct the health insurance cost. To enable the HSA, your health insurance must be a high-deductible health insurance policy. Sole proprietors, partners, and S corporation owners can qualify to deduct this high-deductible insurance on page 1 of Form 1040. (The page 1 Form 1040 deduction does not suffer the 10 percent haircut that applies to itemized medical deductions.)
  • Deduct the HSA contribution. For 2017, you can make a deductible HSA contribution of up to $3,400 if you have qualifying self-only coverage, or up to $6,750 if you have qualifying family coverage (anything other than self-only coverage). The deduction for the contribution is above the line, so it does not suffer from phaseouts and it’s deductible whether you itemize or not.
  • Tax-deferred earnings. The monies accumulated in your HSA grow and compound tax-deferred (or even tax-free if you withdraw correctly).
  • Tax-free withdrawals. Withdrawals from your HSA are tax-free when you use the monies to pay for qualified medical expenses. You can’t pay your high-deductible premiums with HSA funds. But once you reach Medicare age, you can use the withdrawals for Medicare premiums in addition to other qualified medical expenses.
  • Retirement withdrawals. You can make your HSA work like a traditional IRA after reaching Medicare age. To make this happen, you just withdraw funds from the HSA and don’t use them for medical expenses. This triggers the federal income tax but no penalties.

 

 

Easily Fixing Depreciation Errors Can Save Thousands in Taxes

Depreciation is such a valuable tax deduction because unlike most deductions, it doesn’t cost you a penny more than what you’ve already spent in order to reap the benefits. In fact, you don’t have to spend anything in the current tax year to claim it (i.e., you could finance the purchase that you are depreciating).

 

If you simply didn’t claim depreciation on an asset, didn’t know you could take depreciation, or just flat out claimed the

wrong depreciation, correcting depreciation could potentially save you thousands of dollars on this year’s tax

return.

 

Here’s some good news on this error: First, you don’t have to pay the IRS user fees (which can vary from around $2,000 to $10,000), because your depreciation change is going to qualify as an automatic change that’s not subject to user fees.

 

Second, because you failed to claim your correct depreciation in prior years, you are going to have what’s called a negative Section 481(a) adjustment (negative for the government, but positive for you) equal to the total amount of your missed depreciation. This means you will take all the missed depreciation in one lump sum in the tax year when you make your automatic accounting change.

 

Third, with a bit of tax planning as to the year you make the automatic change, you can ensure you realize the best possible tax benefits from your missed depreciation.

 

To make this change, an eight-page IRS Form 3115 and a one-to-two-page Section 481(a) adjustment worksheet attachment must be filled out, in which the dollar adjustment is calculated and you answer some questions for the IRS about the depreciation adjustment.

 

One copy of the Form 3115 is then attached, along with the Section 481(a) worksheet, to your tax return and a duplicate copy is made to file with another office of the IRS.

 

With some planning, this missed deduction can turn into your good fortune.

 

Big Deductions for Temporary Work Assignment

You may already know you can deduct your away-from-home overnight travel expenses.

 

But what tax rules do you need to know if you want to travel, or need to travel, to an out-of-town business location for an extended period?

 

First, your travel to and expenses of living in this out-of-town location are deductible only if this is a temporary work location, which the IRS defines as a location where you expect to spend less than one year.

 

Second, you have to travel away from your tax home. Your tax home is not your personal home. Your tax home is the location of your principal place of business.

 

You can run into these rules when you create a second business location in a second state.

 

For example, a business owner who has an operation in Wisconsin creates a second business location in Florida. One of the two locations is going to be the principal place of business. Traveling to and living in the second location is going to create tax deductions for travel.

 

If you meet the requirements listed above, you can deduct all of your out-of-town travel expenses to the extent they were not reimbursed by your employer.

 

Turning Your Personal Home into a Rental Property

Are you looking to make some cash by turning your home into a rental property? Before you simply convert your home into a rental property, consider one extra step that could add some tax money to your pockets.

The one-extra-step strategy is to create an S corporation and then sell your home to the S corporation, which would then operate as the landlord for the property. With this strategy:

  1. You avoid taxes by using the home-sale profit exclusion of up to $250,000 ($500,000 for joint returns).
  2. You create an increase in your rental property’s depreciable basis that generates an increase in depreciation deductions.

7 Best Practices for QuickBooks Online

Image result for quickbooks online images

Not finding quite everything you need in QuickBooks Online? Here are some handy add-on apps available.

QuickBooks Online may work for you just fine as is. After all, it was designed to meet the needs of the millions of small businesses that want to manage and track their income and expenses, create records and transactions, and run reports to gauge their financial health. QuickBooks Online was also designed to grow along with your business. But there’s no need for Intuit to add internal features to do so. In fact, that would make it too expensive and unwieldy for many companies.

Instead, Intuit has partnered with other small business websites to provides add-ons–applications that extend the usefulness of QuickBooks Online in one or more areas, like accounts receivable and payable, inventory, and expense-tracking. They integrate easily to share data and do the extra work you need. Here are some of them to consider.

Bill.com

Bill.com automates your accounts receivable and payable processes. It supports electronic billing and payment, as well as multiple approval levels.

You can certainly enter and pay bills using QuickBooks Online. And you can send invoices to customers and receive payments. But adding a connection to Bill.com gives you more advanced options for accounts receivable and payable. Simply send your bills to Bill.com by scanning, emailing, faxing, or taking a picture with your smartphone. The site’s automation tools turn them into digital records and route them through your specified approvers. Once approved, they’re paid electronically or by paper check. Invoices are just as easy to process; customers can pay by using PayPal, credit card, or ACH. Bill.com’s mobile app makes it possible to keep up with invoices and bills while you’re out of the office.

Expensify

Are your employees still paper-clipping receipts to handwritten expense reports? This method is unnecessarily time-consuming – and often inaccurate. Expensify solves both problems. Your staff can take photos of receipts with their smartphones. Expensify then converts the expense information into coded digital records and submits them for approval based on your company’s policies. Credit card purchases can be automatically imported, too. All data is synchronized with QuickBooks Online in real-time and coded to reflect your preference of QBO’s expense accounts, customers/jobs, etc. Once you’ve approved a report, you can have the money deposited in the employee’s bank account the next day.

TSheets Time Tracking

TSheets employee scheduling software automates tasks that QuickBooks Online doesn’t do: scheduling and remote time-tracking for your hourly employees. Your staff no longer has to fill in paper timesheets. Instead, they can use their smartphones to track their hours and GPS location points. And while Excel is certainly better for creating schedules than paper, TSheets takes over that task, too. After you’ve approved timesheets, that information is sent over to QuickBooks, ready for use in your payroll processing.

quickbooks

Your employees can easily “punch” in and out using their smartphones. TSheets also uses GPS technology so that your staff members’ locations are always known to you.

SOS Inventory

QuickBooks Online performs some basic inventory management tasks. You can create records for items and use them in transactions, and keep track of the number of items in stock so you know when to reorder (or have a sale). SOS Inventory goes well beyond those capabilities. You can create sales orders, track cost history and serial numbers, and document work-in-progress (WIP). SOS Inventory supports multiple locations and the entire pick/pack/ship process.

Insightly CRM

You can create thorough customer records in QuickBooks Online and document some of your interaction. But it doesn’t facilitate true Customer Relationship Management (CRM) nor project management. Insightly CRM does both. It lets you build exceptionally thorough customer profiles so that you can view social streams, email history, and any events, opportunities, or events related to them. Its project management features include the ability to track by pipelines or milestones, define contact roles and custom fields, and generate advanced project reporting.

QuickBooks Online Integration Key

All of these apps can work in standalone settings, but their integration with QuickBooks Online and their mobile capabilities create powerful partnerships that help you serve both your customers and your employees in ways that QuickBooks Online alone can’t.

We’re not trying to sell you applications here. Our concern is that you’re getting as much out of QuickBooks itself as you can. We can steer you toward add-on solutions if that seems necessary, but we’re always happy to work with you on getting to know QuickBooks Online better and matching its capabilities to your company’s needs.

Heavy Vehicle & Deductible Home Office = Major Tax Savings

You can reap major tax savings with the heavy vehicle and home-office combo.

 

The heavy vehicle produces quick deductions. The home office that qualifies as a principal office eliminates commuting miles, and such an elimination can dramatically increase your business-use percentage of vehicles.

 

For example, say you bought a $50,000 vehicle that you use 60 percent for business. Your depreciation and expensing elections apply to $30,000. But if you can increase your business percentage to 90 percent with a tax code–defined principal office in your home, your base for tax deductions increases to $45,000—that’s a $15,000 increase, and you did not spend a penny or drive a mile farther to capture it.

 

The heavy vehicle strategy requires a gross vehicle weight rating (GVWR) of more than 6,000 pounds. If tax law classifies the heavy vehicle as an SUV, your Section 179 expense deduction is limited to $25,000; otherwise, your limit is subject only to the $510,000 ceiling.

 

On a heavy SUV, the $25,000 ceiling produces benefits on both new and used vehicles.

 

If the SUV is new (not used), you qualify for the generous 50 percent bonus depreciation. This can add up quickly. For example, on a new SUV with a GVWR greater than 6,000 pounds for which you have a business cost (based on your business percentage) of $50,000, you can qualify for a first-year write-off of up to $40,000 for the cost of the vehicle alone.

 

The combination strategy of a heavy vehicle and a qualifying home office applies to your business regardless of business form.

 

If you would like to drill down on this strategy, please don’t hesitate to give us a call at 847-593-7558.

 

The 6 Do’s And Don’ts For Your Next Bonus

Most top companies provide some type of bonus as part of their compensation package. In fact, 75% of companies gave a year-end holiday bonus in 2016; many of those same companies also provide performance based quarterly and semi-annual bonuses. If you’re one of the lucky ones, then you are faced with a problem that most people would love to have. What to do with all that cash? Your fun friend tells you that you’ve worked hard, and deserve to treat yourself with that brand new boat (this is the same person who tells you sake shots at lunch are a great idea and that you won’t regret that tattoo). The responsible friend will tell you to put 100% away in a market index fund, and not to touch it for 40 years. Well, you should kind of listen to both (but really, you and I both know that you should rarely take advice from your fun friend – you know who I’m talking about).

Most financial professionals will agree on the top priorities to address first: debt, emergency fund and retirement. The most important first step is to make a plan, and allocate accordingly. If you have high credit card debt, perhaps allocate 80% to that, 10% to savings and 10% to fun. If you have no credit card debt but only a few months of emergency funds, you could allocate 50% to emergency fund, 30% to retirement and 20% to fun. There’s no right or wrong; do what’s best for you. While there are many smart ways to use your bonus, there are just as many pitfalls to watch out for. This goes for not just bonuses, but inheritances, jackpots and any other windfalls you may receive.

The DOs:

  • Have a plan. The minute you know the amount of your bonus, determine exactly where it’s going. Very important to do this before it hits your checking account! There’s nothing worse than wondering a month later “where did all that money go?”.
  • Set aside whatever is needed for monthly bills and expenses. Bonuses are often an important part of an employee’s total income and needed for living expenses, so you may need to keep some in your checking account.
  • Reward yourself.  Use 10-20% of your bonus on something fun. You deserve it and it keeps you motivated. Listen to your fun friend just this once.
  • Use your bonus as a motivation. IF you get your bonus, THEN you can go on that vacation or upgrade your car. If you don’t get a bonus, then you don’t get the reward.
  • See a financial planner to get a wholistic assessment of your finances and clarify your priorities and goals.
  • If you have money left after allocating towards debt, emergency fund and retirement, other smart options include:
    • Purchase insurance if needed. SelectQuoteis a great resource to find term insurance.
    • College savings. Vanguardprovides details and comparisons of different types of plans.
    • Mortgage prepayment.
    • Save for goals or big purchases: home, vacation, second home or a new car.

The DON’Ts:

  • Count your chickens before they hatch. Let us not forget the valuable lesson learned from Clark Grizwaldduring one sad Christmas. Don’t put down an advance on the backyard pool yet…your ‘big bonus’ may just be a subscription to the jelly of the month club.
  • Let it sit in your checking account. I promise you will spend it on meaningless things, then wake up in three months and realize your entire bonus was spent on take-out, shoes and parking.
  • Make any extravagant purchases before you have created a game plan. Once you’ve allocated the appropriate money to the most important financial priorities, then you can have fun.
  • Depend on it – it’s not guaranteed income.
  • Keep it in a low interest account. For example, if setting part of your bonus aside for a liquid emergency fund that you don’t want to invest, you can still put it in a bank with a high interest savings account. The Simple Dollarand Bankrate provide several options.
  • Treat it like extra play money. This is real money and part of your income.

How to Keep Your QuickBooks Data Safe

You work hard to make sure your QuickBooks data is accurate. Make sure it’s safe, too.

Your QuickBooks company file contains some of the most sensitive information on your computer. You may have customers’ credit card numbers and employees’ Social Security numbers. An intruder who captured all that data could create tremendous problems for you and a lot of other people.

That’s probably the worst-case scenario. But other situations could also spell disaster for your business, which involves losing your company data through fraud, hacking, or simple technical failures.

We can’t overstate the vital importance of protecting your QuickBooks company file, especially your customer and payroll information. Whether someone steals it or it’s inaccessible for another reason, it’s gone. Keeping your business going after such a loss would be very difficult – maybe even impossible.

Here’s what we suggest to prevent that.

Internal Safeguards

No business owner wants to believe that his or her employees could use their QuickBooks access to commit fraud. But it happens. Your company file contains credit card and checking account data that could be used for nefarious purposes. As we discussed last spring, you can restrict user access to specific areas and actions of QuickBooks.

You can limit your employees who have QuickBooks access to certain areas and activities.

To get started, open the Company menu and select Set Up Users and Passwords | Set Up Users. The User List window opens. It should have at least one entry there, for you (Admin). Click Add User and enter the employee’s name and password in the next window that opens, then click Next.

Tip: Your QuickBooks license limits you to a specified number of users. If you’re not sure how many you’re allowed, click F2 to open the Product Information page. The number of user licenses you’ve paid for appears in the upper left.

On the next page of this wizard, click the button in front of Selected Areas of QuickBooks. The following screens will let you define that employee’s access permissions in areas like Sales and Accounts Receivable, Inventory, and Payroll and Employees. When you’ve clicked through every screen and reviewed the summary displayed, click Finish. Your user will now be able to sign in and access the areas you specified.

You can—and should—take numerous other steps to keep your QuickBooks data safe. If your company is big enough to have a dedicated IT expert, he or she will handle most of this. But there’s a lot you can do on your own to prevent data loss and theft.

Keep Your Operating System and Applications Updated

Don’t ignore this dialog box.

Software companies’ occasional updates offer more than just adding new features and fixing bugs. They sometimes refresh your software to ensure greater security based on new threats. Don’t forget about those all-important antivirus and anti-malware applications, as well as QuickBooks itself.

Keep Your Networks Safe

Just as a cold virus spreads around your office, so, too, can unwanted intrusions like computer viruses. Don’t allow an electronic epidemic to get started; take steps ahead of time to prevent it:

  • Discourage employees from excessive web browsing. This can be a hard rule to enforce, as some employees probably need internet access for research, timecard entry, and other work-related tasks. Create a firm policy legislating what workers can and can’t do on company-issued equipment (including tablets and smartphones) or any personal devices that use your wireless network.
  • Ask employees to refrain from using public networks on work equipment. Enforce the rules vigorously, and make compliance an element of performance evaluations.
  • Minimize app installations on business smartphones. Employees should ask for approval. Viruses and malware get in that way, as well as through some websites and email attachments.
  • Use monitoring software. If you can’t afford to pay for “managed IT” (a la carte, third-party IT services), install an application that alerts you to problems.

Use Common Sense

You can fight data loss and theft by being cautious. Be diligent about backups, and if you create them on a local, portable device, don’t leave them in the office. Cloud-based solutions are better. Shred papers that have sensitive information on them. Log out of QuickBooks when you’re not using it or when you leave your office. Be aware of who may be around you, looking over your shoulder.

We take data security very seriously in our own office, and we strongly encourage you to do the same. Contact us if you’re at all concerned with your own data safety, and we’ll come up with a plan together.

Social media posts

Concerned about the safety of your QuickBooks data? We can help you take security measures.

Lose your QuickBooks data, and you’ll face serious consequences. Make sure you keep backups in a safe place.

Do you issue smartphones to employees? Make sure they’re not used on public networks.

Even if you don’t have an IT specialist, you can protect your QuickBooks data from viruses and malware. Ask us how.