Section 179 Depreciation Deduction

Starting in year 2015, the Section 179 deduction limit in now permanent at $500,000 with the investment limit at $2,000,000 and indexed for inflation.  If the total cost of Section 179 property exceeds the investment limit, the available Section 179 deduction is reduced by the amount of the excess (but not below zero).  Amounts disallowed because of the investment limit may not be carried over.  However, if the business income limit prevents a business from deducting all or part of the cost of Section 179 property, the disallowed amount is carried over to the next tax year. Off-the-shelf software eligible for Section 179 is also now permanent. A Section 179 deduction made may be revoked or modified without IRS approval by filing an amended tax return.  Once revoked, the election cannot be reinstated. Carryover of Section 179 attributable to qualified real property provision is now permanent. If you would like to learn more about this tax strategy, please call Susan at...

2016 Health Insurance for S Corporation Owners

Deducting health insurance is a 3 step process for the more than 2% S corporation employee-shareholder.   However, before discussing the 3 step process, the health insurance plan for the more than 2% S corporation employee-shareholder must be established by one of the following:ᵃ The S corporation makes the premium payments for the health insurance policy covering the more than 2% employee-shareholder (and his/her spouse or dependents, if applicable). The more than 2% employee-shareholder makes the premium payments to the insurance company and furnishes proof to the S corporation, which reimburses the more than 2% employee-shareholder . Now here are the 3 steps: The cost of the health insurance premium are on the S corporation books. The S corporation must include the health insurance premium on the more than 2% S corporation employee-shareholder’s Form W-2 in Box 1.  The income is not subject to Social Security and Medicare.ᵇ The more than 2% S corporation employee-shareholder claims the health insurance deduction on page 1 of Form 1040. However, to claim the self-employed health insurance deduction on page 1 of the Form 1040, the more than 2% employee-shareholder must substantiate the following: The more than 2% employee-shareholder cannot take this insurance deduction if s/he or spouse is eligible for employer-subsidized health insurance.ᶜ The more than 2% employee-shareholder premiums cannot exceed the amount of S corporation salary.ᵈ If your S corporation employs less than 50 full-time employees,ᵉ then you do not have to provide health insurance benefits to your employees.  However, when you provide medical benefits to non-owner employees, your S corporation will be penalized $100-a-day if your S corporation reimburses employees for...

2016 Mileage Rates

Beginning Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is: 54 cents per mile for business miles driven 19 cents per mile driven for medical or moving purposes 14 cents per mile driven in service of charitable organizations You always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. You may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. If you would like to learn more about this tax strategy, please call Susan at...

Maintain Your Business Mileage with Simple Apps and GPS Tools

For each business trip you take, you need the following: How far you drove; When you drove Where you drove; and the business purpose for the travel Check out the following apps and GPS Tools that track mileage automatically: MileIQ The Mileage Ace GPS Log Book One of the most common actions taken in an IRS audit is the dis-allowance of business travel. If you would like to learn more about this tax strategy, please call Susan at...

Is an Activity a Repair or an Improvement?

Improvements, which must be capitalized, fall into three categories.¹ Betterment² – activity that contributes towards improving an asset’s performance and/or increasing its value. Restoration³ – activity that returns something to its original condition. Adaption4 to a new or different use – activity is if the adapted unit of property is not consistent with the taxpayer’s ordinary use of the unit when the unit was originally placed in service by the taxpayer. If the activity does not fall into one of the three above categories, then the activity can be considered a repair which is expensed for the year.  However, if the activity is an improvement then the activity must be allocated over the appropriate years. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880. ¹ Treas. Reg. §1.263(a)-3(d) ² Treas. Reg. §1.263(a)-3(j) ³ Treas. Reg. §1.263(a)-3(k) 4 Treas. Reg. §1.263(a)-3(l)...

Last Call for Landlords/Tenants in 2013

Do you own or rent commercial property? If so, you should seriously consider making “qualified leasehold improvements” in 2013.  This year, you can take a Section 179 deduction¹, if eligible, of up to $250,000, then 50% bonus depreciation² and finally, 15-year depreciation³.  For example, if you spent $500,000  Take the Section 179 deduction of $250,000 first Then take $125,00 in bonus depreciation ($500,000-250,000)*50% Finally, deduct $4,163 with the IRS’s first year midyear convention using 15-year depreciation. So in year 2013, you could, if taxable income allows, take a total depreciation expense of $379,163.  If you wait until year 2014, your depreciation expense is $12,305 since commercial property will be depreciated over 39 years. What qualifies as Leasehold Improvement Property?  Utilities Framing Walls Doors Windows Pipe and fittings Plumbing fixtures  Fire protection HVAC (heating, ventilation and air conditioning) Permanent interior finishes Permanent floor coverings Millwork and trim In addition,  The improvement must be made under or pursuant to a lease by the lessee (or any sub-lessee) of the interior portion, or by the lessor of that interior portion: The interior portion of the building is to be occupied exclusively by the lessee ( or any sub-lessee) of that interior portion; and The improvement is placed in service more than 3 years after the date the building was first placed in service by any person. If you would like to learn more about this tax strategy, please call Susan at 847.895.9880. ¹ IRC Section 179(f). 2 Reg. Section 1.168(k)-1(b)(2)(D). 3 IRC Section...