Charitable Donations for Small Business

As the year comes to a close, many small business owners and individuals look for ways to make deductions on their taxes.  Contributing to your favorite cause is a great way to minimize your bottom line.  Here's how to make those charitable donations count!

Small Business Guide to Deducting Charitable Donations
By Bonnie Lee

Businesses can make tax deductible donations to bona fide nonprofit organizations. But you may be surprised to learn how it is deducted on your tax return. In fact, the only entity able to deduct a cash charitable contribution as a business expense is a C Corporation.

If you are a sole proprietor and you make a donation of $100 to a dog rescue society which is registered as a 501(c)(3) with the Internal Revenue Service – all bona charities must be registered as such for your gift to be tax-deductible – and your business received no goods or services in return, the deduction is listed as an itemized deduction on Schedule A of your tax return. This provides a tax benefit only if you are able to itemize deductions.

You cannot deduct this contribution on Schedule C. It is not a business expense; it will not reduce your self-employment tax. The IRS views it as a personal expense paid from business funds.

But now let’s say you want to support young athletes and therefore donate $100 from business funds as a sole proprietor to the local soccer league. In exchange, they run a small display ad for your business on their program. This is no longer a donation. This is an advertising expense; you received something in return which can be classified as an “ordinary and necessary business expense,” and therefore the cost is deductible as such on Schedule C.

If as a sole proprietor you donate your services to a bona fide 501(c)(3), you have no deduction whatsoever. Doesn’t seem fair, does it? But the IRS places no value on your time or expertise. A manicurist donated her time to do nails for women clients at a shelter who were preparing for job interviews. While she was not allowed to deduct the $35 per manicure she would normally charge, she was able to deduct her mileage to and from the shelter, and the cost of all supplies and materials used in the performance of the manicures. She gave away bottles of nail polish to be distributed by the nonprofit to their clients. These were a write off for her as well.

By the same token, if this manicurist were to give away a nail care set of polish and files and other products to a poor individual who needs help, she would not be able to write off the donation. This is simply because the IRS does not allow the deduction of gifts to individuals, or for that matter to political organizations or candidates.

If your business is incorporated as an S Corporation or formalized as a partnership filing Form 1065, the same rules apply. In fact, any donations made at the S Corporate or partnership level flow out as a special line item on your Schedule K-1 and end up on Schedule A of your individual income tax return. Again, this is a tax benefit only if you are able to itemize deductions.

A C Corporation may take the deduction on Form 1120 but must follow all of the IRS rules regarding donations.

Remember to acquire and retain the acknowledgment letter from the nonprofit for your donation. Your canceled check is not enough documentation and the IRS may disallow the deduction if you cannot provide this document. It must be obtained before filing your tax return. You cannot request it later during an IRS audit.

To view the original article, click here.

Last Minute Money Saving Tax Moves

Now that we’re really down to the wire, it’s time to start crunching those numbers!  You’ve have a little bit longer this year, Individual Tax Returns are due on April 18th, but you may want to take the weekend to make sure you’re taking advantage of all the deductions available to you.  Lower your tax liability and avoid IRS scrutiny with some of these last minute tips.

1. Did you know you could deduct the cost of your 2015 Startup?

As long as your costs fall below the $50,000 mark, you could deduct up to $10,000 of your taxable income.  Up to $5,000 for research, development and creation of your business and $5,000 for the implementation costs such as incorporating, patenting, and legal fees.  Research costs spent improving your product or service are considered eligible expenses as well.

What doesn’t count:

-Advertising

-Promotions

-Quality control testing

-Consumer Surveys

2. Did you know that the threshold for big company purchases has been raised?

If you’ve purchased expensive equipment last year for your business, this year you can deduct up to $500,000 as long as your total eligible property costs are less than $2 million.  This can include big items like a new walk-in refrigerator for restaurants, or furniture for your office space, even computer programs.

What doesn’t count:

- Improvements on rental properties

- Air conditioning or heating units

- Any property used outside of the U.S. 

Did you know that in addition to mileage you can deduct auto loan interest?

Everyone’s favorite year end deduction— mileage, now includes any interest you’ve paid on auto loans!

What doesn’t count:

- Your daily commuting miles don't count as business miles

3. Did you know that the Home-Office deduction equation has simplified?

It has! Up to 300 square feet at $5 per square foot for a whopping total of $1,500. There is still the old method available for filing, it may be worth looking into which one saves you more.

What doesn’t count:

- Multi-Use Space; a playroom/office doesn’t count. Neither does your living room where you occasionally check emails.

It’s not too late!

Contribute to a Health Savings Plan (HSA), a Retirement Savings Plan like a traditional or Roth IRA and a percentage will be deductible.  However, each one has a cap A Roth IRA cannot except $5,500, or $6,500 if you’re over 50.  HSAs max out at $3,350 for individual and $6,650 for families.

Take these extra few days to scrutinize your account statements.  An extra couple hundred in tax liability is nothing to scoff at! 

Change in Small Business Expense Threshold for Deductions

Straight from the IRS, news that allows small businesses to immediately deduct expenses that would previously have to be spread out annually through depreciation deductions!

For Small Businesses: IRS Raises Tangible Property Expensing Threshold to $2,500; Simplifies Filing and Recordkeeping

WASHINGTON —The Internal Revenue Service today simplified the paperwork and recordkeeping requirements for small businesses by raising from $500 to $2,500 the safe harbor threshold for deducting certain capital items.

The change affects businesses that do not maintain an applicable financial statement (audited financial statement). It applies to amounts spent to acquire, produce or improve tangible property that would normally qualify as a capital item.

The new $2,500 threshold applies to any such item substantiated by an invoice. As a result, small businesses will be able to immediately deduct many expenditures that would otherwise need to be spread over a period of years through annual depreciation deductions.

“We received many thoughtful comments from taxpayers, their representatives and the professional tax community, said IRS Commissioner John Koskinen. “This important step simplifies taxes for small businesses, easing the recordkeeping and paperwork burden on small business owners and their tax preparers.“

Responding to a February comment request, the IRS received more than 150 letters from businesses and their representatives suggesting an increase in the threshold. Commenters noted that the existing $500 threshold was too low to effectively reduce administrative burden on small business. Moreover, the cost of many commonly expensed items such as tablet-style personal computers, smart phones, and machinery and equipment parts typically surpass the $500 threshold.

As before, businesses can still claim otherwise deductible repair and maintenance costs, even if they exceed the $2,500 threshold. The new $2,500 threshold takes effect starting with tax year 2016. In addition, the IRS will provide audit protection to eligible businesses by not challenging use of the new $2,500 threshold in tax years prior to 2016.

For taxpayers with an applicable financial statement, the de minimis or small-dollar threshold remains $5,000.

To access the original article, click here.

5 Tax Deductions for Millennials

With so many of my clients and friends being what is considered "Millennials" this article seems extremely relevant to my network of contacts. Doing your taxes can be a daunting task so it is important to take advantage of any breaks that you can! 

Five Tax Deductions You Probably Could Be Claiming if You Are One of These "Millenials"

By: Hunter Slaton

Doing your taxes is already a pretty arcane process, and that’s before you factor in deductions, exemptions, write-offs, and more. What even is a deduction, anyway? I don’t know. But the highly skilled Certified Public Accountants behind new tax app Taxfyle, the world’s first on-demand CPA marketplace, do. Here are five tax deductions that younger people in particular may be missing.*

But first, a quick lesson: A tax deduction is anything that reduces your total taxable income. Everyone is eligible to claim a standard deduction (for singles, it’s $6,300 for 2015, aka the tax year everyone’s about to pay) or to itemize — but the latter is only worth doing if your itemized deductions add up to more than $6,300, which for young people they probably won’t.

Thanks to CPAs Victor Aldin and Steve de la Fe — both of whom are signed up and ready to help you out on Taxfyle — for providing the following expert info.

Moving Expenses for Your First Job

If your first job is at least 50 miles from your old home, you can deduct the cost of travel and moving your stuff to your new spot. There’s a lot of expenses you can claim on this, and Victor says he’s “never seen a maximum” dollar amount. If you drive, you can deduct 23 cents a mile, other transportation expenses (i.e. parking and tolls), hotel nights, and moving-company fees. The only catch is, if your new company reimburses you for any of the above, you can’t claim it.

Health Savings Account

If you deposit money directly from your paycheck into a Health Savings Account, or HSA (which you can use as a pre-tax way to pay for medical expenses), you can deduct that full amount from your 1040 tax form at the end of the year. It doesn’t matter if you spend all of the money, either — but keep in mind that if you spend the money on anything other than health care, you’ll have to pay a penalty.

Simplified Employee Pension (SEP) Plan or Traditional IRA

It’s never too early to start thinking about retirement, even if you’re relatively fresh out of college and freelancing or working for yourself. An SEP is a pension plan for self-employed people, and whatever pre-tax money you put into it over the course of the year (up to the max allowable amount of 20% net employment earnings, or $52K, whichever comes first) is 100% deductible. Or, if you contribute to a traditional IRA (not Roth, as that’s post-tax), you can deduct contributions of up to $5,500 per year.

American Opportunity Credit/Lifetime Learning Credit

These two credits actually reduce your tax bill, rather than your adjusted gross income. Both can slash up to $2,500 from what you owe. The former can be claimed by people getting undergraduate degrees, and the latter to anyone who’s enrolled in higher education. And that one doesn’t have to be degree-seeking, either: Technical schools and continuing education counts.

Student Loan Interest

If you’re paying down a student loan, keep an eye out for form 1098-E, which is mailed to you from your loan provider if you paid $600 or more in interest over the previous year. If you’re single and you make no more than $80K/year, you can deduct a maximum of $2,500 in student-loan interest from your taxable income. Keep in mind that if you paid less than $600 in interest, you won’t receive form 1098-E — but you can still claim the interest. Just call your loan provider to find out how much you paid.

These are only the big deductions you might be missing. If you want to learn (and save!) more, download the Taxfyle app, which provides you with access to the very best CPA talent who will work on your taxes 24/7 — and for cheaper.

All it takes are three easy steps:

1. Download the Taxfyle app.
2. Answer 10 yes or no questions and upload your W-2 or 1099 (if you have it; if not, you can skip this step).
3. Get an instant quote. If your assigned CPA needs any more info they will send you an in-app encrypted message.

That’s it! The process is super easy — and, if you refer a friend, you’ll get $10 off your return, and $5 off theirs. No need to stress any more about doing your taxes *or* missing deductions that could save you $$$.