Tax Accountant – Baltimore MD
The IRS allows business owners to deduct the ordinary and necessary expenses of operating a business each year. However, business owners also are required to capitalize the costs associated with acquiring, producing, and improving tangible property used in their businesses (such as equipment, supplies, buildings, etc.). Because these two rules had often proved difficult to reconcile, the IRS issued new final regulations in 2013 clarifying how the rules apply. Though these regulations are extensive and complex, small business owners should be aware of some of the opportunities they provide.
The regulations delineate when you may deduct and when you must capitalize amounts paid to acquire, produce, or improve tangible property. Generally, amounts paid to improve a unit of property must be capitalized, while amounts paid for repairs and maintenance, as well as for materials and supplies consumed during the year, may be deducted.
Safe Harbor for De Minimis Expenditures
Qualifying businesses may elect to use a de minimis safe harbor that allows them to deduct costs incurred to acquire or produce tangible property in amounts of up to either $5,000 or $500 per item or invoice. The higher limit is available for taxpayers with an applicable financial statement (AFS). An AFS can be a certified audited financial statement used for nontax purposes, such as for obtaining credit. If you don’t have an AFS, you may still qualify for the $500 safe harbor if you expense amounts in accordance with a consistent accounting procedure in place at the beginning of the tax year.
Use of the safe harbor does not limit the ability to otherwise deduct amounts paid for incidental materials and supplies or for repairs and maintenance. Rather, it is an administrative convenience to allow expensing of smaller items without analyzing each one under the relevant rules.
Safe Harbor for Routine Maintenance
You may deduct amounts paid for recurring activities that keep your business property in its ordinarily efficient operating condition. For buildings and their systems, you must reasonably expect to perform the maintenance more than once during the 10-year period beginning at the time the property is placed in service. For other property, you must expect to perform the maintenance more than once during the property’s class life used for depreciation purposes.
Safe Harbor for Small Taxpayers
Qualifying small businesses may also deduct the costs of work performed on a building with an unadjusted basis of less than $1 million. To qualify for the safe harbor, the business must have average annual gross receipts of less than $10 million. Additionally, the total amount paid during the taxable year for the building’s repairs, maintenance, and/or improvements may not exceed the lesser of $10,000 or 2% of the unadjusted basis of the eligible building property. The building may be owned or leased.
Additional restrictions may apply for you to qualify for these safe harbors. Contact us if we can help you determine how the final regulations apply to you.
If you would like to become more aggressive on lowering your taxes and worry less about trying to manage this yourself, call 410-466-3779 and ask for Steven Graber.
Graber & Associates is a Baltimore CPA Accounting firm that has operated since 1993. We provide two convenient office locations, International Drive in the Inner Harbor area and Park Heights Avenue near Pimlico, to better serve our clients throughout the broader Baltimore metro.
First, as an employer, you are required to protect employees that are killed on the job, are injured, or become ill. Most employers obtain either state sponsored or private insurance. Others will use self-insurance. Regardless of which option you select, it is the employer who foots the bill.
Secondly, workman’s comp is a state based program as opposed to a federal program. Most states require some form of workman’s comp, and as the employer, you are expected to accept the rules and regulations. For those businesses with under four employees, there is an exemption to carrying the coverage, at least in some states.
Next, workman’s comp pays four different types of benefits. These are survivor’s benefits, disability benefits, rehabilitation benefits, and medical benefits. The injured employee or their heirs receive a lump sum payment which then relieves the business of any further liability.
Also, employees are covered with a few exceptions. These exceptions include business owners, independent contractors, unpaid volunteers and domestic employees in private homes.
In addition, workers’ comp is paid on the no-fault basis. This means that regardless of who is at fault for the injury, the employee receives the benefits, and the business does not have to admit liability.
Finally, even when an employee is outside of the workplace, they may be covered. This can include traveling for business purposes, running work related errands, or attending a required business social event.
The state rules and regulations for workman’s comp insurance can be tricky, but they do protect both the employee and employer. When purchasing this insurance, it is always best to work with a professional that can ensure your business’s needs are met.
A corporate inversion, simply put, is a method corporations use to reduce their tax responsibilities. While this loophole may present a sound tax solution for the corporation in question, it has a direct impact on tax revenue collected by the United States government, as well as on competition between companies.
A corporate inversion takes place when a U.S. corporation renounces it’s citizenship by merging with a smaller company in a foreign country. This country typically has a more favorable corporate tax structure as well as tax rules that allow the U.S. corporation to reduce its tax burden.
Once the corporation merges with the foreign entity, it declares the new country as its place of residency. At that point, the United States can no longer impose or collect taxes on the corporation for future or past income. While this may be a positive situation for the company, it does has a negative effect as it reduces tax revenue for the U.S. as well as creates an atmosphere of unbalanced competition between corporations that have transacted an inversion and those that have not.
Over the last decade, corporate migration has increased to the point that now only one-tenth of total tax revenues collected come from corporations. That’s down from one-third in the 1950s. In fact, in the past ten years, a total of 47 U.S. corporations have performed corporate inversions and changed their legal residences to countries outside of the United States.
While it stands to reason that a corporation should do all it can to reduce its tax burden, and it could even argue that doing so is its fiduciary responsibility to its shareholders, this particular tax loophole is stripping tax revenues from the U.S. government at an unsustainable rate.
In addition it is also pitting the corporations that have made an inversion against the corporations that have not creating a toxic business environment which is why this is one loophole that needs to be fixed.