Deducting capital expenditures in the year of purchase
Section 179 Expensing: Furniture, equipment, software, vehicles and capital assets are normally subject to a write off over their useful life. For example, if you buy a desk, the useful life is seven years. To take the write off you must spread out the cost over seven years. Equipment, vehicles and software have a five year useful life. Section 179 expensing is an exception to tax law and was created to encourage capital asset purchases. This section allows you to write off the entire cost on your tax return in the year of purchase. So consider making necessary purchases now before year end, there are plenty of rules and limitations surrounding this deduction. Call us to discuss this further.
Writing off start-up expenses
Did you know that you may write off the expenses you incur in the investigatory or startup phase of your business? Eligible expenses include planning, consulting with professionals, training employees and all other ordinary and necessary expenses incurred to get your business off the ground. This deduction works once the business is operational, so if you are still in startup mode on Dec. 31, you must defer the deduction to 2018. The IRS defines an operating business as one that has opened its doors or is accepting transactions.
You can deduct $5,000 of business startup expenses. If your total exceeds that, you may amortize the remainder over 180 months. There are special rules and limitations, so call us to discuss this further.
Setting up a retirement plan
Your business needs working capital, but don’t forget about funding your future. Contributions made to retirement plans reduce your taxable income. For 2018, self-employed individuals can contribute $18,500 as a 401(k) deferral, plus 25% of net income. Check with your plan administrator for limits and deadlines for different types of plans.
Reimbursing business expenditures paid from your personal funds
Gather together all those receipts for business expenditures you paid out of personal funds and have your business reimburse you before year end. If your business is operating as a S or C Corporation, be sure you have an accountable expense plan in place. Post your expenses to a spreadsheet and total by category of expense. Attach all receipts to provide bona fide back up documentation and then cut yourself a check and know that you have just reduced taxable income.
Check with us to find out if you should be giving personally or if it’s better for gifts to be made from business funds. And don’t forget to get those acknowledgment letters. The IRS has been auditing and disallowing contributions without that backup document. A cancelled check is not enough substantiation.
Holiday Parties are 100% deductible
Holiday festivities provided for your employees are 100% deductible. Parties for clients and associates are 50% deductible. But there are rules. You must have a business purpose and that consists of more than just promoting goodwill or networking and the expense cannot be lavish or extravagant. Check with us or look at IRS Publication 463 to ensure that you are in compliance.
However, note that starting 2018, there is No deduction for entertainment expenses. This includes Event tickets and Tickets to qualified charitable events.
Please note the information above is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of the information provided below should not be acted upon without specific professional guidance. Please call us if you have any questions.