Business Tips

BUSINESS TAX: TIME TO CONSIDER SECTION 179?

Posted on Oct 25, 2017

Section 179 expensing can be a very powerful tax-planning tool for small- and medium-sized businesses acquiring capital assets. While it doesn’t change the amount of depreciation you can take over the life of capital purchase, it can change the timing by allowing you to deduct your purchase in the first year you place it in service. How does Section 179 work? Generally, when you purchase a piece of equipment for your business — say a $10,000 computer system — you can’t deduct the entire cost in the year it was purchased. It must take the expense by depreciating the cost over several years. Section 179 allows you to deduct the cost of the $10,000 computer in the year it was purchased and placed in service. You can deduct the expense of up to $510,000 of qualified property. The $510,000 deduction begins phasing out dollar for dollar if $2.03 million or more of qualified property is purchased during the year (meaning it phases out completely after you’ve purchased $2.54 million in business capital assets). What is qualified property? Qualified property includes things like tangible personal property, computer software and qualified real property (e.g., interior building costs for nonresidential buildings). Section 179 doesn’t apply to property acquired for use in a rental property if it’s not your trade or business but simply an investment. Some vehicles qualify for Section 179 expensing, within limits. (The limits were brought about when some business owners bought expensive Hummers and expensed the cost in a single year.) If you are considering your options for depreciating your business assets under Section 179, here are important details to remember: Section 179 allows deducting the expense of up to $510,000 of qualified business purchases. A Section 179 deduction cannot create a loss for the business. A Section 179 deduction must be for business use. If an asset is not entirely used for business, the allowance is reduced. If you sell a Section 179 asset prior to the full depreciation period, you will have to record any sales proceeds as taxable income. Many states limit the use of this federal shifting of depreciation. Taking Section 179 for capital purchases can be useful, but it’s not for everyone. Using Section 179 for an immediate tax break means it’ll no longer be available for future years. Consider this as you manage your business’s tax obligation. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Is your hobby actually a business?

Posted on Sep 22, 2017

If you invest a ton of personal time and effort into your hobby, plus you have multiple customers and keep professional records, your hobby might actually be a business. Turning your hobby into a business means you can deduct qualified business expenses. But that’s only if you do it right. The IRS has certain criteria that must be met, or your hobby-turned-business could be challenged. Give us a call to find out more. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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CONTRACTOR OR EMPLOYEE?

Posted on Sep 20, 2017

Knowing the difference is important Is a worker an independent contractor or an employee? This seemingly simple question is often the contentious subject of numerous IRS audits. As an employer, getting this wrong could cost you plenty in the way of Social Security, Medicare and other employment-related taxes. Here is what you need to know. As the worker: If you are a contractor and not considered an employee you must: Pay self-employment taxes (Social Security and Medicare-related taxes) Make estimated federal and state tax payments. Handle your own benefits, insurance and bookkeeping. As the employer: You must ensure your employee versus independent contractor determination is correct. Getting this wrong in the eyes of the IRS can lead to: Payment and penalties related to Social Security and Medicare taxes. Payment of possible overtime, including penalties for a contractor reclassified as an employee. A legal obligation to pay for benefits. Things to consider When the IRS recharacterizes an independent contractor as an employee they look at the business relationship between the employer and the worker. The IRS focuses on the degree of control exercised by the business over the work done and they assess the worker’s independence. Here are some of their guidelines: The more the employer has the right to control the work (when, how and where the work is done), the more likely the worker is an employee. The more the financial relationship is controlled by the employer, the more likely the relationship will be seen as an employee and not an independent contractor. To clarify this, an independent contractor should have a contract, have multiple customers, invoice the company for work done, and handle financial matters in a professional manner. The more businesslike the arrangement, the more likely you have an independent contractor relationship. While there are no hard-set rules, the more reasonable your basis for classification and the more consistently it is applied, the more likely an independent contractor classification will not be challenged. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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Tax deductions for pet costs

Posted on Sep 8, 2017

Pets are family – and sometimes business. If you own an animal that has a specific role in your business (like a guard dog or a cat that keeps pests away), you may be able to deduct the cost of your pet on your tax return. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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BUSINESS PLANNING: THE HOURGLASS APPROACH

Posted on Sep 6, 2017

When it comes to annual planning, businesses often spend too much time on the planning process or too little because they are busy with day-to-day operations. There’s a simple method called the “Hourglass Approach” that can help you efficiently focus on your goals and create a plan to achieve them. Top of the glass                                    In the first stage, review the internal and external business environment. Force yourself to carefully consider the variables affecting your business: The internal environment. Look at all aspects of your business, from personnel to financing. Review your sales and marketing as well as operations. Identify your strengths and weaknesses as well as the critical success factors for each aspect of your company. The external review. Now conduct the same review of the business environment. Review your competition. Review your current marketplace. Look specifically for trends, both good and bad. Conduct a similar review of the legal and regulatory environment. The narrowing middle Now you should have a good handle on the current situation. Use this information to create the middle of the glass and distill it into actionable priorities. Short lists of actionable focus. Create a short list of three to five strengths and weaknesses. Create a similar short list of your biggest problems and opportunities. These lists will be your focus as you set your goals for the next year. Create goals. Your goals should be well defined and measurable. Financial goals: sales, gross margin or net income targets. Volumetric goals: number of customers, orders or other key measures. Learning goals: lessons from product launches, competitive intelligence. Operational goals: projects to address weaknesses or leverage strengths. The final results In the bottom stage, you need to create your plan with a specific road map to reach your goals, such as: Create your annual financial plan Identify resources you need to achieve your goals Prioritize projects and create to-do lists Create basic timelines Consider trying the Hourglass Approach to create your next business plan. It could help you and your team move your business in the right direction. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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REAP THE BENEFITS OF HIRING YOUR CHILD

Posted on Sep 1, 2017

Hiring your children to work in your business can be a win-win situation for everyone. Your kids will earn money, gain real-life experience in the workplace, and learn what you do every day. And, you will reap a few tax benefits in the process. Before you decide if hiring your child is the right thing for your business, learn if it can work for you. Generally, if your child is doing a legitimate job and the pay is reasonable for the work, his or her salary can be a tax-deductible business expense. Your child’s income can be tax-free to them up to the standard deduction amount for a single taxpayer ($6,350 in 2017). Wages earned in excess of this amount are typically taxed at your child’s rate, which is likely lower than your rate. The following guidelines will help you determine if the arrangement will work in your situation: Make sure your child works a real job that he or she can reasonably handle, no matter how basic or simple. Consider tasks like office filing, packing orders, or customer service. Treat your child like any other employee. Expect regular hours and appropriate behavior. If you are lenient with your child, you risk upsetting regular employees. To avoid questions from the IRS, make sure the pay is reasonable for the duties performed. It’s not a bad idea to prepare a written job description for your files. Include a W-2 at year-end. Record hours worked just as you would for any employee. Pay your child using the normal payroll system and procedures your other employees use. If you have questions, give us a call. Together we can determine if hiring your child is the right course of action for your business and your family. Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and...

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