Tax deductions

Craig L Elggren, Latest CPA Updates on Small Business Tax Deductions

One thing you can expect from me, rain or shine, is to keep up to date with changes in everything tax-related. This week is no exception.

Significant changes have been made to the deployment of tax deductions for small businesses, and not all deductions apply to all businesses in Phoenix Metro.

But first, let’s talk briefly about the infrastructure bill 2021. While the bill has come under serious pressure and attraction in the House, views are divided on how it will affect people. small enterprises.

By the Treasury, the bill will target tax increases on large corporations (bringing corporate tax – i.e. C-corps – to 28%, among others) while protecting the majority of small businesses (around 97%). But opposing sources argue that this does not take into account the many small C companies that could potentially be affected by the proposed increase in the corporate tax rate. In reality, according to the Tax Foundation “More than half of passed-on business income could face tax increases.

There is certainly more to come on this, and we’ll keep you posted when lawmakers make a final decision.

Now, while we can’t stop a potential tax increase, we can help you with your small business tax deductions.

Let’s move on to the most recent updates …

Craig L Elggren, Latest CPA Updates on Small Business Tax Deductions
“Life is the art of drawing without an eraser.” – John W. Gardner

Do your friends ever tell you that you are lucky because you have a business and you can deduct everything from your taxes? Maybe you should make some new friends… just kidding (sort of).

But there is no “maybe” when you look at how to take advantage of tax deductions for your Phoenix Metro small business. The rules keep changing.

What’s in a deduction?

While the 2017 tax reform removed a lot of deductions for individuals (at least for now), businesses still have a little more leeway.

Hundreds of deductions remain available to business owners (generally speaking), including complex depreciation deductions – which we won’t go into this time. Some small business tax deductions are infamous and fanciful, such as the “Hummer Loophole” where some business owners can successfully write off the entire purchase price of heavy SUVs.

All deductions are by no means available for all businesses in Maricopa County. So, let’s simplify the discussion here. Experts say small businesses are better off trying to use about six to ten strategies to get tax deductions.

First (and most importantly), plan ahead. If you show up with the shoebox of receipts at the last minute and expect us (or any tax preparer, we would warn you) to pull some magical deductions out of a hat … well, that won’t work . Making deductions with the IRS takes time and work, especially when keeping records to back up your deductions.

Some common tax deductions for small businesses include office expenses (which we’ll cover in a minute), cell phone expenses, and personal car mileage. These deductions are prorated between personal and business use – and again, we would like to point out to Phoenix Metro business owners: document document document.

Meal tickets

Let’s take a look at those reliable decades-old business deductions: meals and entertainment (M&E, aka wine and dinner). For centuries, it was assumed that you could deduct the full cost of a steak dinner or even a ball game if you just took a business “associate” and mentioned the business once or twice. Well, no more.

Now the rule is that a “business associate” who triggers all of this deduction has to be someone with whom you “reasonably” expect to do business.

The federal M&E deduction (the claims that tax courts are always busy with) has recently gotten a little confusing. Policymakers have tried to say that meals can be deducted, but entertainment cannot, which has made many business taxpayers question how exactly you separate the two.

Currently, restaurant business meals are 100% tax deductible until next year; the deductible percentage should drop again thereafter. The food you buy during an entertainment activity is also a separate deduction from the entertainment itself.

Entertainment expenses are no longer deductible. Entertainment, according to the IRS, is “any activity which is of a type generally considered to constitute entertainment, amusement or recreation,” listing as examples “entertaining in bars, theaters, country clubs, golf and athletics clubs, sporting events and on hunting, fishing, vacations and similar trips.

Sometimes the wording of the rules of deduction is subject to a little (or a lot) of interpretation. Did we mention the tax courts?

At home and away

Let’s finish with two other common tax deductions for small businesses.

Home office: As more and more people appreciate the beauty of working from home, it’s a deduction that will take a little more thought. A regular employee cannot take a deduction for workspace. But you, as a business owner or independent contractor, may be able to deduct office expenses.

If you are self-employed, you have a few more options, but with the caveats that the space is your primary place of business and is used exclusively for that purpose. Examples of permitted deductions: repairs and maintenance of the area used for business; public services; property taxes; Assurance; and mortgage interest.

The easiest way to calculate your deduction is to take your home office area (up to 300 square feet) and multiply it by five dollars. The more complex method is to figure out what percentage of your home’s square footage is your home office, and then prorate some “direct” and “indirect” expenses. Be sure to check with us (or the IRS) about these conditions.

To travel: The IRS considers a business day to be eight hours. For a 100% full day travel deduction, at least half of that time must be spent on a work-related activity.

Note: Traveling from one destination to another is considered a business activity by the IRS. Spend four hours getting somewhere for a business meeting and you’re qualified.

Your meals deduction when traveling on business depends on how far you travel and if it feels like you need to sleep during the trip (no, naps don’t count). Record each receipt and note when, where and even what you ate. Then write this information directly on the receipt when you incur the expense.

Document document document.

Taxes are always changing – and so are deductions. Staying on top of these changes is what we do for you. We’re happy to talk about these and other deductions for your business, so let’s set a time to discuss:

To keep things in order,

Craig L Elggren, CPA
(480) 464-0205
Craig L Elggren, CPA CP

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