Auto Expenses

For taxes, you can either use the standard mileage deduction or the actual expenses, but not both methods.  The standard mileage deduction includes depreciation so you can’t claim depreciation as an additional deduction under this method, but you can claim depreciation separately if you decide to track actual expenses (instead of the standard mileage deduction).

Standard Mileage Rate

With the standard mileage rate, you take a mileage deduction for a specified number of cents (determined by the IRS) for every business mile you drive. To figure out the deduction, multiply your business miles by the applicable standard mileage rate.

The standard mileage rate requires you keep track of how many miles you drive for business and the total miles you drive. You also need the date of the trip, your business destination and business purpose.

However, if you use the vehicle solely for business and can prove it, then you’ll just need to keep track of the beginning mileage and ending mileage for the year (since all the miles in between will be business related.)

If you choose the standard mileage rate, you cannot deduct actual car operating expenses. That means you can’t deduct maintenance and repairs, gasoline and its taxes, oil, insurance, vehicle registration fees nor depreciation.

Generally, you’ll be better off using the standard mileage rate if you drive a smaller, old or an inexpensive car, particularly if you drive many business miles.   This is because you get the same fixed deduction rate no matter how much the car is worth. Because the standard mileage rate factors in depreciation, an inexpensive car might benefit more from it than an expensive vehicle

Actual Expenses

Instead of using the standard mileage rate, you can deduct the actual cost of using your car for business, plus depreciation. This requires much more record keeping , but you can potentially get a larger deduction with the actual expense method.  This method requires you keep detailed records of every single expense.  You’ll want to keep careful track of all the costs you incur for your car during the year, including:

  • gas and oil
  • repairs and maintenance
  • depreciation of your original vehicle and improvements
  • car repair tools
  • license fees
  • parking fees for business trips
  • registration fees
  • tires
  • insurance
  • car washing
  • lease payments
  • towing charges
  • auto club dues

The actual expense method will likely provide a larger deduction if you drive a larger more expensive car or an SUV or Minivan. This is especially true if you have a more expensive vehicle or don’t have a lot of business miles per year.

Which Method To Choose

The only way to know for sure which method is best for you is to keep careful track of your costs the first year you use your car for business. This means tracking your mileage and your actual expenses.  If you do this, then at tax time you can compare which method gives you the higher deduction

You can only make this comparison and choose the method to use the first year you use your car for business. After that, you’re ability to choose which method is subject to restrictions.

If you use the standard mileage rate the first year, you can switch to the actual expense method in a later year.  Then, you can switch back and forth between the two methods after that, subject to certain restrictions.

Conversely, if you don’t use the standard mileage rate in the first year, you have to stay with the actual expense method in future years.

Therefore, if you’re not sure about standard mileage rate vs actual vehicle expenses, it’s a good idea to use the standard mileage rate the first year you use the car for business. This leaves all your options open for later years.

 

Posted in Deductions

Trade Names & DBAs

A trade name is a name, other than the true name, of an entity or individual under which the entity or individual is authorized to transact business or conduct activities.  Sometimes a trade name is referred to as a “doing business as” or “DBA” name

A business (other than a nonprofit entity) or an individual transacting business in the state of Colorado under a name other than the person’s true name is required to file a trade name with the Secretary of State’s Office.

A nonprofit entity may, but is not required to, file a statement of trade name for any name other than its true name under which it does business.

A trade name provides notice that you are using that trade name, but does not prevent anyone else from using the same name. It is not required to be distinguishable from any other trade name or any other name that is on record with the Secretary of State. Any trade name may be registered, even if it is similar to or exactly the same as another name that is in the records.  However, name protection exists under common law and federal trademark law.

A trade name for a reporting entity is effective as long as the entity remains in Good Standing.  A trade name for an individual or a non-reporting entity is effective for approximately one year.

Posted in Colorado

2019 Standard Mileage

The Internal Revenue Service has issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

 

Beginning on January 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

 

  • 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018
  • 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018
  • 14 cents per mile driven in service of charitable organizations

 

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

 

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses.

 

A taxpayer 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.

Posted in Deductions

2019 Colorado Minimum Wage

On January 1, 2019, the Colorado minimum wage increased to $11.10 per hour. For tipped employees, the minimum wage will be $8.08. These rates represent increases from the current levels of $10.20 and $7.18 respectively.

 

The new minimum wage is the result of the passage of Amendment 70 by Colorado voters in the November 2016 election. Amendment 70 requires the minimum wage to increase by 90 cents each January 1st until the rate reaches $12.00 on January 1, 2020.

Posted in Colorado

New Tax Law & Family Tax Credits

The Tax Cuts and Jobs Act (TCJA) doubled the maximum Child Tax Credit, boosted income limits to be able to claim the credit, and created a second smaller credit of up to $500 per dependent aimed at taxpayers supporting older children and other relatives who do not qualify for the Child Tax Credit.

 Child Tax Credit

Higher income limits mean more families are now eligible for the Child Tax Credit. The credit begins to phase out at $200,000 of modified adjusted gross income, or $400,000 for married couples filing jointly and increased from $1,000 to $2,000 per qualifying child.  The credit applies if the child is younger than 17 at the end of the tax year, the taxpayer claims the child as a dependent, and the child lives with the taxpayer for more than six months of the year.   Up to $1,400 of the credit can be refundable for each qualifying child. This means an eligible taxpayer may get a refund even if they don’t owe any tax.

 New Credit for Other Dependents

A new tax credit – Credit for Other Dependents — is available for dependents for whom taxpayers cannot claim the Child Tax Credit. These dependents may include dependent children who are age 17 or older at the end of 2018 or parents or other qualifying relatives supported by the taxpayer

 

Posted in IRS

Collecting Sales Tax

On June 21, 2018 in South Dakota v. Wayfair, Inc. the U.S. Supreme struck down the physical presence standard to create state sales tax nexus and instead, established economic nexus as the new standard.  Physical presence is no longer the nexus standard when evaluating whether or not a company should collect and remit sales tax to a specific state.

Currently, more than 20 states have enacted similar legislation and more states are expected to follow. Under these laws, remote sellers are required to collect sales tax (or comply with use tax notification requirements) in a state if their business, measured by either sales volume and/or the number of sales transactions, exceeds certain minimum thresholds. The precise thresholds and effective dates of these laws vary from state to state. Further adding to the compliance complexity, many states have enacted and other states are likely to enact economic nexus standards for state income tax, not just sales/use tax.

The Wayfair decision may require you to register, collect and remit sales tax in additional states, or to modify your notifications to online purchasers regarding use tax reporting obligations. Your computer software applications might be updated to comply with these obligations, but you may need to use third parties to modify their online sales platform.

We recommend that you engage a qualified professional or tax attorney to further investigate the relevant issues.

Posted in IRS

Meals and Entertainment Deductions after Tax Reform Examples

The Tax Cuts and Jobs Act does not specifically address the deductibility of expenses for business meals.

The Department of the Treasury and the Internal Revenue Service intend to publish proposed regulations which will include guidance on the deductibility of them, but until then, here are some examples provided by IRS Notice 2018-76:

Example 1:

Taxpayer A invites B, a business contact, to a baseball game. A purchases tickets for A and B to attend the game. While at the game, A buys hot dogs and drinks for A and B.

The baseball game is entertainment as defined and, thus, the cost of the game tickets is an Entertainment expense and is not deductible by A. The cost of the hot dogs and drinks, which are purchased separately from the game tickets, is not an entertainment expense. Therefore, A may deduct 50 percent of the expenses associated with the hot dogs and drinks purchased at the game.

 

Example 2:

Taxpayer C invites D, a business contact, to a basketball game. C purchases tickets for C and D to attend the game in a suite, where they have access to food and beverages. The cost of the basketball game tickets, as stated on the invoice, includes the food and beverages.

The basketball game is entertainment as and, thus, the cost of the game tickets is an entertainment expense and is not deductible by C. The cost of the food and beverages, which are not purchased separately from the game tickets, is not stated separately on the invoice. Thus, the cost of the food and beverages also is an entertainment expense. Therefore, C may not deduct any of the expenses associated with the basketball game.

 

Example 3:

Assume the same facts as in Example 2, except that the invoice for the basketball game tickets separately states the cost of the food and beverages.

As in Example 2, the basketball game is entertainment and, thus, the cost of the game tickets, other than the cost of the food and beverages, is an entertainment expense and is not deductible by C. However, the cost of the food and beverages, which is stated separately on the invoice for the game tickets, is not an entertainment expense, C may deduct 50 percent of the expenses associated with the food and beverages provided at the game.

Posted in IRS

Meals and Entertainment Deductions after Tax Reform

The Tax Cuts and Jobs Act generally disallows a deduction for expenses with respect to entertainment, amusement, or recreation. However, the Act does not specifically address the deductibility of expenses for business meals.

The Department of the Treasury and the Internal Revenue Service intend to publish proposed regulations which will include guidance on the deductibility of:

-expenses for certain business meals

-expenses for food and beverages furnished primarily to employees on the employer’s business premises

-when business meal expenses are nondeductible entertainment expenses and when they are 50 percent deductible expenses

 

The Act generally disallows a deduction for any item of an activity that is of a type generally considered to constitute entertainment, amusement, or recreation.  It generally provides that no deduction is allowed for the expense of any food or beverages unless:

(A) such expense is not lavish or extravagant under the circumstances, and

(B) the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages

 

“Entertainment” means any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips, including such activity relating solely to the taxpayer or the taxpayer’s family.

 

“Entertainment” may include:

-a hotel suite, or an automobile to a business customer or the customer’s family

-providing of a hotel room or an automobile by an employer to an employee who is on vacation

 

“Entertainment” does not include:

-supper money provided by an employer to an employee working overtime

-hotel room maintained by an employer for lodging of employees while in business travel status

-automobile used in the active conduct of trade or business even though also used for routine personal purposes such as commuting to and from work

 

The Act clarifies that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business. Taxpayers may still deduct 50 percent of an allowable business meal expense if:

  1. The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.
Posted in IRS

Vacation, Holiday, and Overtime Pay

Holidays

This may come as a surprise, but federal law does not require employers to pay employees extra, or above normal pay, for working on a holiday.  The holidays are typically considered regular workdays and employees receive their normal pay for time worked.  The Fair Labor Standards Act (FLSA) requires employers to pay only for time worked.  However, many employers provide holidays off or extra pay for working on a holiday. These arrangements are considered employee benefits and are typically included in an Employment Contract.

 

Overtime

Also, under federal law, a holiday doesn’t have a special designation for overtime pay nor is working on a holiday considered overtime. Federal law views holidays as just another business day.  Under federal law, overtime is calculated weekly. This means if an employee works over 40 hours during the week of typical paid holidays, they are entitled to “time and a half” for the hours worked over 40 hours.

 

Vacation

One other point, federal law does not provide for vacation pay. Under the FLSA, employers are not obligated to pay employees for time not worked including vacation days and holidays. Therefore, if an employee takes a vacation day on a holiday, there is no law requiring them to be paid for the time off.

If an employee is entitled to vacation pay, it is based on an agreement between the employer and the employee.

Posted in Uncategorized Tagged with:

The New 1040

The IRS is working on a draft version of the 2018 Form 1040, U.S. Individual Income Tax Return.  It reduces the size of the form to two half-pages in length and eliminates more than 50 lines.

The 2018 draft form uses the first page to gather information about the taxpayer and any dependents. The second page gathers information on the taxpayer’s income, deductions, credits, and taxes paid.

The other items reported on the 1040 will be calculated on various new schedules, which have also not yet been officially posted. They include:

Schedule 1: Additional Income and Adjustments to Income –

such as business income, alimony received, capital gain or losses, and adjustments including educator expenses and student loan interest expense.

Schedule 2: Tax –

such as the tax on a child’s unearned income (commonly called the kiddie tax), the alternative minimum tax, and any excess premium tax credit that must be refunded.

Schedule 3: Nonrefundable Credits –

such as the foreign tax credit, the credit for child and dependent child care, the education credit, and the residential energy credit.

Schedule 4: Other Taxes –

such as household employment taxes, the health care individual responsibility payment, the net investment income tax, and the additional Medicare tax.

Schedule 5: Other Payments and Refundable Credits –

such as estimated tax payments, the net premium tax credit, and amounts paid with an extension request.

The draft Form 1040 refers to various existing schedules including;

Schedule A – Itemized Deductions

Schedule C – Profit or Loss From Business

Schedule D – Capital Gains and Losses

Schedule E – Supplemental Income and Loss

Schedule F – Profit or Loss From Farming

Schedule H – Household Employment Taxes

Schedule SE – Self-Employment Tax

Schedule 8812 – Child Tax Credit

Posted in IRS