If you run a small business, you already have a full plate. The last thing you need is for the IRS to question any of your business expense deductions. But it could happen. And that’s why having records that prove your expenses is so important. Even deductions for routine business expenses could be disallowed if you don’t have appropriate records.

What Records Are Required?

Except in a few instances, the tax law does not require any special kind of records. You’re free to have a recordkeeping system that is suited to your business, as long as it clearly shows your expenses. In addition to books that allow you to track and summarize your business transactions, you should keep supporting documents, such as:

• Canceled checks
• Cash register receipts
• Credit card sales slips
• Invoices
• Account statements

The rules are stricter for travel and transportation expenses. You should retain hotel bills or other documentary evidence (e.g., receipts, canceled checks) for each lodging expense and for any other expense of $75 or more. In addition, you should maintain a diary, log, or account book with the information described below.

• Travel. Your records should show the cost of each separate expense for travel, lodging, and meals. For each trip, record your destination, the dates you left and returned, and the number of days spent on business. Also record the business purpose for the expense or the business benefit you gained or expected to gain. Incidental expenses, such as taxi fares, may be totaled in reasonable categories.
• Transportation. As with travel, you should record the amount and date of each separate expense. Note your business destination and the business purpose for the expense. If you are deducting actual car expenses, you’ll need to record the cost of the car and the date you started using it for business (for depreciation purposes). If you drive the car for both business and personal purposes or claim the standard mileage rate, keep records of the mileage for each business use and the total miles driven during the year.

Don’t Mix Business and Personal Expenses

Things can get tangled if you intermingle business and personal expenses. You can avoid headaches by having a separate business bank account and credit card.

Call us at 631-474-2500 now to discuss how we can formulate an effective tax strategy for you or your business. You can also request your free consultation online.

The world of disability coverage can be confusing for business owners. Click through to learn more about what disability coverage is, and what your options are as an employer.

As an employer, you want to offer fair coverage to all your valued employees. After all, if someone is injured or ill, you want to be sure they aren’t worrying about their job while they recover. That’s where several types of disability insurance as well as federal and state programs come into play. Each offers specific coverage for different reasons.

Short-Term and Long-Term Disability

Both short-term and long-term disability coverage refer to optional insurance policies offered to employees. Only employers can purchase short-term coverage, but anyone can buy long-term disability, and some employers offer it. Short-term coverage must be exhausted before long-term coverage kicks in and covers the rest of someone’s time out from work.

Most policies require that an employee’s personal, vacation and sick time are exhausted before short-term disability coverage begins. Short-term disability insurance typically covers several weeks of time off due to an accident or illness. After that, long-term covers the remainder. Long-term is usually a span of several months or more when someone is recovering from a serious illness or injury and cannot work.

Both short-term and long-term disability are considered optional insurance that many employers choose to offer as part of their benefits package. Short-term disability is paid for by the employer. Long-term may be paid in whole or part by the employer, employee or both.

Should You Offer Disability Benefits?

In the past, many companies paid entirely for disability benefits. These were included as part of an employee’s benefits package. Today, many companies are offering long-term disability as an optional benefit. Employees are either enrolled automatically and must opt out, or they can choose to enroll with weekly payroll deductions.

Offering long-term disability to your staff may be a smart idea. It’s an added perk that makes your company’s benefits package all the more attractive when wooing star candidates away from competitors, and it usually doesn’t cost much.

Call us at 631-474-2500 now to discuss how we can formulate an effective tax strategy for you or your business. You can also request your free consultation online.

When you are self-employed, your business profits are taxed to you at federal rates as high as 39.6%. Add self-employment taxes of 15.3% of the first $118,500 of your net self-employment earnings plus 2.9% of any earnings over that amount. Then there’s an additional 0.9% Medicare surtax on earnings in excess of $200,000 ($250,000 if married filing jointly). At tax rates like these, it pays to take steps to reduce your tax burden.

Step One: Deduct Business Expenses

Be sure you have an organized system for recording your expenses. To be deductible, a business expense must be “ordinary” (common and accepted in your trade or business) and “necessary” (helpful and appropriate for your trade or business). Since personal expenses are generally not deductible, it’s smart to have a separate business bank account and use a separate credit card for business purchases.

Step Two: Deduct Health Insurance Premiums

You may qualify to deduct premiums paid for medical, dental, and qualified long-term care insurance coverage for you, your spouse, and your dependents.* The coverage may include children who haven’t reached age 27 by the end of the year, even if you don’t claim them as dependents on your tax return.

Unlike health insurance premiums paid for employees, the self-employed health insurance deduction won’t save you self-employment taxes. However, it will lower your taxable income. You must meet certain requirements to qualify for the deduction.

Step Three: Deduct Retirement Plan Contributions

Funding a retirement plan can also save you significant tax dollars. Within limits, plan contributions will be tax deductible.** Several types of plans may be suitable for you as a self-employed taxpayer, including a simplified employee pension (SEP) plan, a savings incentive match plan (SIMPLE), or a solo (individual) 401(k) plan. Each plan has specific features and requirements that you will want to weigh carefully before making a choice.

Don’t deal with tax issues on your own. Call us right now to find out how we can provide you with the answers you need.

Are you an individual or business owner who’s interested in lowering your tax burden? Call Newton Sankey & Co. at 631-474-2500 and ask to speak to a tax accountant now or request a consultation online and we’ll contact you.

* Dollar limits apply to the deduction for long-term care insurance premiums.

** Although deductible for income-tax purposes, contributions to your own retirement plan account do not reduce earnings subject to self-employment taxes.

Crowdfunding — or funding a project through the online contributions of many different backers — is becoming increasingly popular. If you are considering raising crowdfunding revenue or contributing to a crowdfunding campaign, you will need to address the many tax issues that can arise.

Background

While crowdfunding was initially used by artists and others to raise money for projects that were unlikely to turn a profit, others have begun to see crowdfunding as an alternative to venture capital. Depending on the project, those who contribute may receive nothing of value, a reward of nominal value (such as a T-shirt or tickets to an event), or perhaps even an ownership/equity interest in the enterprise.

Is It Income?

In an “information letter” released in 2016,¹ the IRS stated that crowdfunding revenues will generally be treated as income unless they are:

• Loans that must be repaid
• Capital contributed to an entity in exchange for an equity interest in the entity
• Gifts made out of detached generosity without any “quid pro quo”

The IRS noted that the facts and circumstances of each case will determine how the revenue is to be characterized and added that “crowdfunding revenues must generally be included in income to the extent they are for services rendered or are gains from the sale of property.”

Frequently, the IRS learns of the activity because crowdfunding entrepreneurs have used a third-party payment network to process the contributions. Where transactions during the year exceed a specific threshold — gross payments in excess of $20,000 and more than 200 transactions — that third party is required to send Form 1099-K (Payment Card and Third-Party Network Transactions) to the recipient and the IRS. Payments that do not meet the threshold are still potentially taxable.

If It’s Income

“Ordinary and necessary” business expenses are generally tax deductible, but deductions for expenses are limited if the IRS deems the activity a hobby rather than a trade or business. Generally, the IRS applies a “facts and circumstances” test to determine if you have a profit-making motive, which is necessary for a trade or business.

New Businesses

Favorable deduction rules may be available for certain types of expenses incurred in starting a new business. If eligible, the business may elect to expense up to $5,000 of those costs (subject to phaseout) in the year the business becomes active, with the remainder of the start-up expenditures deducted ratably over a 180-month period.

For Contributors

Campaign contributors should not assume that their gifts qualify as tax-deductible charitable contributions. Tax-deductible contributions must meet certain requirements, including that they be made to a qualified charitable organization. If gifts are made to an individual or nonqualified organization, you will generally need to file a gift tax return for gifts to any one recipient that exceed the gift tax annual exclusion ($15,000 for 2018).

These are just some of the potential tax issues that may arise. Consult your tax advisor regarding your specific situation.

Are you an individual or business owner who’s interested in lowering your tax burden? Call Newton Sankey & Co. at 631-474-2500 and ask to speak to a tax accountant now or request a consultation online and we’ll contact you.

Source/Disclaimer:

¹Information Letter 2016-0036