May 23, 2018 § Leave a comment
“I just bought a new car for business. How much of the cost can I deduct?” As a CPA, this is by far one of the most frequent questions I am asked. Unfortunately, there is no easy answer. But under the right circumstances it can be a sizeable deduction and with the Tax Cuts and Jobs Act (TCJA) that passed in December last year, it just got more beneficial.
Luxury autos purchased after December 31, 2017 and that are used over 50% for business have dramatically increased depreciation limits. The information below shows the substantial increase allowed for new and used passenger vehicles acquired in 2018.
$10,000 for Year 1, under previous law $3,160.
$16,000 for Year 2, previously $5,100.
$9,600 for Year 3, previously $3,050.
$5,760 for Year 4 and thereafter until fully depreciated, previously $1,875.
If bonus depreciation is taken in the first year, then up to $18,000 could be deducted. Under prior law, bonus depreciation could only be taken on new vehicles and the maximum was $11,160.
As you can see this is a substantial increase. However, keep in mind that this deduction is only for the business use of the vehicle. If the business usage of the vehicle is less than 100%, than the above deductions will decrease based on business use. If the use is less than 50%, the taxpayer is required to use a much slower straight-line depreciation method over 6 years.
Heavy vehicles such as SUV’s, pickups and vans are not subject to the luxury auto rules stated above. To be considered a “heavy” vehicle the Gross Vehicle Weight Rating (GVWR) must be over 6,000 pounds. The vehicle will usually have a manufacturer’s label on the inside edge of the driver’s door so that you can verify the GVWR of the vehicle.
Heavy vehicles are eligible for the Section 179 deduction that allows a taxpayer to expense the full amount of the purchase price in the year of purchase. Heavy SUV’s are limited to $25,000 of Section 179 deduction whereas the other heavy vehicles can take up to $1 million in Section 179 expense. However, Section 179 can be limited since there has to be taxable business income in order to take the deduction.
The really good news from the TCJA is that heavy vehicles are also eligible to take 100% bonus depreciation in the first year making the Section 179 rules irrelevant. Bonus depreciation is now eligible to be taken for new and used assets which includes heavy SUVs, pickups, and vans that are used over 50% for business.
One caveat to watch for with vehicles owned by a taxpayer’s Corporation, is if the vehicle is used by a shareholder-employee that owns 5% or more of the company, the vehicle has to be used over 50% in business activities. No personal use of the vehicle can count toward the 50% business amount even if the personal use is charged back to the employee as compensation.
Another caveat is that vehicles are considered listed property and as such are subject to stricter reporting requirements to prove business use. Each vehicle should have a mileage log. The log should show beginning and ending mileage to determine the total miles driven during the year as well as having a contemporaneous recording of miles driven during the year for business so that the business use percentage can be calculated.
As shown, deductions for a vehicle can get rather complicated and each situation is different. However, for nearly anyone in business who owns a vehicle there are deductions that can be taken. Be sure to consult your tax advisor on your personal situation to see how to maximize your deductions.
If you have recently purchased a vehicle or are thinking of buying one soon, keep these rules in mind to possibly “drive” your vehicle deductions up and slow down your tax liability.
May 16, 2018 § Leave a comment
The business world is full of individuals indicating they are leaders. There is a multitude of various leadership styles ranging from coercive; leaders which demand compliance to servant; leaders which focus on meeting the needs of their team.
A true leader, in my mind, is someone who has the interest of their team as a main concern. True leaders know their team members and themselves well. Sometimes this is difficult. However, a true leader takes the time to show interest, concern, and attempts to understand each team member. With this knowledge, the true leader is better equipped to assist the team members to be motivated and successful.
The true leader is focused on building the next generation of leaders. This is how a sustainable business operation is built. A true leader supports team members; allowing them to make decisions. A true leader walks beside and trains team members through their failures providing growth opportunities.
A true leader maintains a positive attitude; holding their emotions in check especially in tough situations. They do this without pride standing in the way. The true leader has the confidence to know when they are wrong and move past failures. Identifying problems and providing solutions is a great trait of a true leader. Other qualities, which I believe, a true leader must possess are:
- ability to listen
- being a team player
- willing to change
- inspires others
- focused on important items
Having these qualities assists in developing a better workplace. The true leader trusts their team members to perform efficiently and independently. They build a positive culture allowing team members to be more confident and more willing to share ideas.
If you build and display these qualities each of us can be true leaders in how we relate with clients and other team members. Show your leadership talents! Step up and “Be a True Leader!”
May 9, 2018 § Leave a comment
Randomly, I received a shirt from my favorite brand in the mail the other day and I didn’t place any orders. Come to find out it was from my mother. She wanted to give me something for helping her with their taxes this year, but she knew I wouldn’t accept money. So, after working with my wife, she ordered a shirt to say thank you and surprised me with it.
When opening the package, I started to think of all the reasons why this particular brand is my favorite. Yes, it checks off all of my required boxes for proper fit, my desired style, necessary color and appropriate price, but when I was taking the shirt tags off and reading through all the details they shared with me, I experienced why I will remain loyal to this company.
Not only does this company understand and excel in client experience that I enjoy with every order and delivery (or random surprise), they make the user feel unique with a twist of wit. The tag indicates I am the 147th owner of this one of kind shirt and it’s made for me. There are only 146 others roaming around with my shirt. That’s not even three people per state. The tag continues to inform me that this style of a shirt was first made on 12.18.2017. That’s an interesting and fun fact. The other tag provides washing instructions. It says not to wear the shirt, and that only people who want to dress unlike any others should put this on. On the other side, it tells me when washing to use my brain, and to love thy neighbor but for heaven’s sake, do not dress like him. All those little efforts create a bond with me, makes me feel special to own this shirt and privileged the get to wear it, even though there may be 100 other brands that can make the same shirt with similar fit, style, color and price.
As a firm, we have established committees of different experts to constantly evaluate our services, people, processes, procedures, and technologies to always be a step ahead for our clients and their experience with us. We know that we offer similar services like many CPAs across the country. We also know that our culture, people, and prices aren’t a match for everyone but for the ones that we serve today and the days to come, our goal is to ensure that you feel one of a kind, as special as I do wearing my shirt, and to feel privileged to be our client.
May 1, 2018 § Leave a comment
Another exciting tax season is in the books. Undoubtedly, your credits matched your debits, you had your information in to your tax advisor weeks in advance, and there were no last-minute snafus. No? At McGowen, Hurst, Clark, & Smith, P.C. (MHC&S), we realize things come up, and recognize that taxes are probably not your favorite thing to do. However, income taxes are a fact of life that can seriously impact your success, so here are three tips to make next year a little less taxing.
1. Pay Attention to Your Paystub:
As we wrap up the 2017 tax season, it is the perfect time to review your paystub. New changes to the tax law make it especially important to know how much federal and state income tax is being withheld from your paychecks. The IRS has a handy Withholding Calculator that can be used to estimate 2018 income tax. To use the calculator, you will need a copy of your 2017 tax return and most recent paystub. The calculator takes the new tax law into account and can help you decide if you need to adjust your Federal and State W4.
2. Prepare Your Finances for the Future:
If you are a business owner, making real-time decisions are a must. At a minimum, you should be ensuring that your bank and credit card accounts are reconciled monthly, and that your accounts receivable and accounts payable are current. This will give you a better picture of your profitability throughout the year and help identify potentially fraudulent activities. Keeping accurate and updated accounting records allows businesses to make better projections and pay accurate quarterly tax estimates accordingly. While these bookkeeping functions can be time consuming and tedious, technology can help. Utilizing applications, or “apps,” can make your life a lot easier. Apps can assist in streamlining your data and increase efficiency. While it can be daunting to know which app to use – a myriad exists for managing inventory, payables, receivables, payroll, and budgeting, etc. – they can cut down on the time you spend on accounting and let you focus on what’s important; running your business. At MHC&S, we can help you navigate the sea of options (bill.com and Webgility are a couple of our favorites) and help you combine your processes with the right technology. It’s okay to rid yourself of redundancies and cut out the clutter!
Like in any relationship, communication is vital, and not communicating with your tax advisor could cost you, literally! Purchases, sales, births, deaths, moving, or a change in employment all have an impact on your tax liability. In the tax world, planning for change is much easier than reacting to it, and having the right plan is crucial. MHC&S is there to help you plan for whatever comes next in your particular situation, and strong communication is essential to ensuring you make an informed decision. Whether it’s keeping an eye on your income tax withholdings, restructuring your business’ accounting processes, helping with some basic accounting transactions, or planning for the next tax season, MHC&S wants to help.
We recognize not everyone thinks taxes are fun. But, by using these tips and our expertise, you can feel confident knowing that whatever the year may bring, you can stay balanced.