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Business Start-up Costs — What’s Deductible?

Start UpLaunching a new business takes hard work — and money. Costs for market surveys, travel to line up potential distributors and suppliers, advertising, hiring employees, training, and other expenses incurred before a business is officially launched can add up to a substantial amount.

The tax law places certain limitations on tax deductions for start-up expenses.

  • No deduction is available until the business becomes active.
  • Up to $5,000 of accumulated start-up expenses may be deducted in the tax year in which the active business begins. This $5,000 limit is reduced (but not below zero) by the excess of total start-up costs over $50,000.
  • Any remaining start-up expenses may be deducted ratably over the 180-month period beginning with the month in which the active business begins.

Example. Gina spent $20,000 on start-up costs before her new business began on July 1, 2015. In 2015, she may deduct $5,000 and the portion of the remaining $15,000 allocable to July through December of 2015 ($15,000/180 × 6 = $500), a total of $5,500. The remaining $14,500 may be deducted ratably over the remaining 174 months.

Instead of deducting start-up costs, a business may elect to capitalize them (treat them as an asset on the balance sheet). Deductions for “organization expenses” — such as legal and accounting fees for services related to forming a corporation or partnership — are subject to similar rules.

If you are tired of overpaying taxes, simply call 510-222-5800 and ask for Navjeet.  Our initial consultation is free.  Lowering your taxes legally is our expertise.

 

Chahal & Associates services small business owners throughout the Bay area.  We have convenient offices in Emeryville, San Rafael and Pinole.  Chahal & Associates provides additional expertise in QuickBooks Accounting, International Taxation, Restaurant Accounting and Retail Accounting.

New Tax Law Provisions

Last summer’s highway trust fund extension law* includes a few important federal tax provisions that affect business and individual taxpayers.

Return due dates

Tax AvoidThe new law accelerates the filing deadline for partnership returns by one month, effective with returns for tax years that begin after December 31, 2015. As a result, the due date for partnership returns will be the fifteenth day of the third month after the end of the partnership’s tax year — March 15 for a partnership with a calendar year.

C corporations will have an additional month to file their returns, generally effective with returns for tax years beginning after December 31, 2015. As a result, C corporation returns will be due by the fifteenth day of the fourth month after the end of the tax year (by April 15 for a C corporation with a calendar year). The extended deadline doesn’t take effect until tax years beginning after December 31, 2025, for C corporations with fiscal years ending on June 30.

Basis reporting

For federal estate-tax purposes, property included in the gross estate is generally valued at its fair market value on the decedent’s date of death. That same fair market value then becomes the property’s income-tax basis in the hands of the person who acquires the property from the decedent.

The new law doesn’t change this rule. However, it requires the executor of any estate required to file a federal estate-tax return to furnish an information statement to the IRS and to each person receiving property from the estate. The statement must show the value of the property as reported on the return (and any other information the IRS may require). There are penalties for failure to file and for tax understatements resulting from inconsistencies in basis reporting.

Mortgage information returns

Under the new law, mortgage lenders must include additional items, such as the amount of principal outstanding at the beginning of the year, on information returns required to be furnished after December 31, 2016.

If you are tired of overpaying taxes and would like to be more aggressive lowering your taxes but stay within the legal limits, call 510-222-5800 and ask for Navjeet.  Our initial consultation for small business owners is free.

 

Chahal & Associates is a California Tax and Accounting firm that focuses on lowering your taxes legally.  We have three convenient locations to service the broader Bay area and are the fastest growing firm locally.  Our offices are located in Marin County – San Rafael, Emeryville – Alameda County, and Pinole – Contra Costa County.

While we work with all types of businesses, Chahal & Associates also has specialty services like International Taxation, Expatriate Tax, Restaurant Accounting, Retail Accounting, QuickBooks Accounting and Auto Repair Accounting.

* Surface Transportation and Veterans Health Improvement Act of 2015

Setting Up Your Business in the United States

Set Up Biz in USInternational businesses that want to do business in Northern California face a mountain of issues.  To make this process simpler, Chahal & Associates is doing something about this.

Chahal & Associates has created a unique concept designed around making the process for helping international companies to smoothly and quickly establish a United States entity for doing business in California.

With this program, our team of experts is available to assist with business aspects of this transition.  And for the legal aspects, we will provide you with recommendations on the best immigration law firm for your particular circumstances.

The Chahal & Associates team will help you with the following issues:

  • Determining the type of entity most suitable for your business
  • Establishing a business entity
  • Obtaining all tax ID numbers and business licenses
  • United States tax expertise
  • Relocating employees to United States
  • Transfer pricing consulting and establishing United States payroll

Our team is fluent in six different languages ranging from English to Hindu to Punjabi and many more.

If you are seeking assistance for establishing a business in California, then our unique concept is ideal for you.

Call 510-222-5800 and ask for speak with Navjeet Chahal regarding your business.

 

Tax Breaks for Bay Area Businesses

Tax BreaksIf 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, entertainment, 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.

Entertainment. Record the date the entertainment took place and the amount of each separate expense, along with the name and address or location of the place of entertainment. Note the business purpose for the expense or the business benefit you gained or expected to gain and the nature of any business discussion or activity that took place. Also list the identities and occupations of the individuals you were entertaining or other information that indicates their business relationship to you.

If the entertainment was directly before or after a business discussion, be sure to indicate the date, place, nature, and duration of the discussion and the individuals who took part in both the discussion and the entertainment activity. For a business meal, you must prove that either you or your employee was present.

Transportation. As with travel and entertainment, 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.

If you are tired of overpaying taxes and would like to be more aggressive lowering your taxes but stay within the legal limits, call 510-222-5800 and ask for Navjeet.  Our initial consultation for small business owners is free.

 

Chahal & Associates is a California Tax and Accounting firm that focuses on lowering your taxes legally.  We have three convenient locations to service the broader Bay area and are the fastest growing firm locally.  Our offices are located in Marin County – San Rafael, Emeryville – Alameda County, and Pinole – Contra Costa County.

While we work with all types of businesses, Chahal & Associates also has specialty services like International Taxation, Expatriate Tax, Restaurant Accounting, Retail Accounting, QuickBooks Accounting and Auto Repair Accounting.

 

Why Hire a QuickBooks Certified ProAdvisor

QuickBooks Certified ProAdvisors are accountants that have gone through a rigorous training process developed by Intuit, the company that developed QuickBooks.  And at the end of this training, a series of tests must be passed in order to become certified.

QB Certs 4Why Hire a Certified ProAdvisor?

A Certified ProAdvisor can provide accounting and tax assistance well beyond a technical staff person at Intuit.  Often, they have extensive experience that can save you precious time and money rather than trying to figure out something yourself.

Second, a Certified ProAdvisor often knows what is currently available on the market today to solve your day-to-day challenges either with a QuickBooks product or another vendor that integrates with QuickBooks software.  Surprisingly, there are many apps and software vendors that make QuickBooks operate more effectively and save you time.

Chahal QBAnd third, a Certified ProAdvisor will attend conferences to learn what changes are around the corner.  For example, the cloud accounting changes to QuickBooks are rapidly changing so staying abreast of these changes will be key to better serving your business needs.

If you are searching for a QuickBooks Certified ProAdvisor, call 510-222-5800 and ask for Navjeet.

Chahal and Associates is a rapidly growing tax and accounting firm serving the entire Bay area with three convenient offices, San Rafael, Emeryville and Pinole.

Net Operating Losses Provide Tax Benefits

NOL2For many businesses, profits vary from year to year. However, with proper planning, even a bad year can be helpful from a tax perspective. Where business deductions exceed gross income, a taxpayer may have a net operating loss (NOL) that can be used to offset income in another tax year, potentially generating a refund of previously paid taxes.

Who May Use an NOL?

NOLs are available to individual business owners, corporations, estates, and trusts. Partnerships and S corporations do not take NOL deductions, though their partners and shareholders may use “passed through” losses on their own returns.

How Is an NOL Applied?

The general rule is that a taxpayer may carry an NOL back two years and forward 20 years, though certain limited exceptions may apply. For example, an individual with an NOL that was caused by a casualty, theft, or disaster may use a three-year carryback period.

In general, the taxpayer will carry back an NOL to the earliest year it can be used and then carry it forward, year by year, until it is used up. The taxpayer may also elect to forego the two-year carryback and carry the loss forward for the 20-year period. However, the general preference is to use an NOL sooner rather than later because a dollar of tax saved today is generally worth more than a dollar saved in the future.

How Is an NOL Calculated?

Calculations of NOLs can be complicated. For example, a noncorporate taxpayer’s NOL is calculated without regard to any personal exemptions or NOLs from other years, and certain deductions for capital losses and nonbusiness items are limited.

If you are tired of overpaying taxes, call 510-222-5800 and ask for Navjeet.  Lowering your taxes legally is what we do best.

 

Lower Your Taxes for the Self Employed Business Owner

Self EmployedWhen you are self-employed, your business profits are taxed to you at federal rates as high as 39.6%. Add self-employment taxes, which in 2016 will amount to 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.

If you are tired of overpaying taxes, simply call 510-222-5800 and ask for Navjeet.  Our initial consultation is free.  Lowering your taxes legally is our expertise.

 

Chahal & Associates services small business owners throughout the Bay area.  We have convenient offices in Emeryville, San Rafael and Pinole.  Chahal & Associates provides additional expertise in QuickBooks Accounting, International Taxation, Restaurant Accounting and Retail Accounting.

 

* 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.

Workman’s Comp Coverage – What it Means for Your Business

While rules and regulations for workman’s comp insurance change from state-to-state, there some general guidelines you need to know and follow no matter where your business might be located.

Workers CompFirst, as an employer, you are required to protect employees that are killed on the job, are injured, or become ill. Most employers obtain either state sponsored or private insurance. Others will use self-insurance. Regardless of which option you select, it is the employer who foots the bill.

Secondly, workman’s comp is a state based program as opposed to a federal program. Most states require some form of workman’s comp, and as the employer, you are expected to accept the rules and regulations. For those businesses with under four employees, there is an exemption to carrying the coverage, at least in some states.

Workers Comp2Next, workman’s comp pays four different types of benefits. These are survivor’s benefits, disability benefits, rehabilitation benefits, and medical benefits. The injured employee or their heirs receive a lump sum payment which then relieves the business of any further liability.

Also, employees are covered with a few exceptions. These exceptions include business owners, independent contractors, unpaid volunteers and domestic employees in private homes.

In addition, workers’ comp is paid on the no-fault basis. This means that regardless of who is at fault for the injury, the employee receives the benefits, and the business does not have to admit liability.

Finally, even when an employee is outside of the workplace, they may be covered. This can include traveling for business purposes, running work related errands, or attending a required business social event.

The state rules and regulations for workman’s comp insurance can be tricky, but they do protect both the employee and employer. When purchasing this insurance, it is always best to work with a professional that can ensure your business’s needs are met.

As your trusted accountant, we work with hundreds of small business owners to proactively reduce injuries, minimize leave time, and minimize your costs.  It’s an extension of what we can do for your business.

5 Common Rental Property Income Mistakes

Vaca Home RentalsEntering the property rental market is a common way to increase your net worth in the long run as well as generate some passive income in the short run. If you are new to the landlord business though, you may fall prey to some common rental property income mistakes when you file your tax return. Of course, the best way to ensure that you don’t make any of the following mistakes is to have a professional prepare, or at least review, your return; however, knowing what the most common mistakes are is a good place to start.

  1. Not declaring rent when it is received – any rent received by a landlord must be declared in the year it is received. It is common, for example, to require a deposit as well as first and last month’s rent when leasing a property. Even though the last month’s rent isn’t actually due yet it must be declared in the year when you receive the funds.
  2. Security deposits count as income if not returned – if you collected a $2,000 security deposit and find that you need to keep $1,000 of it when the tenant moves out to repair damages and/or clean the property you need to declare the $1,000 as income. Of course, you may also have corresponding expenses if the funds are used to complete repairs.
  3. Expenses paid by a tenant are income to the landlord — if your tenant fixes something on the property, the money spent by the tenant is actually income to the landlord if the cost of the repairs is deducted off the rent. Again, you may also have a corresponding deduction for the cost of the repairs, meaning you need to declare both income and expenses.
  4. Property and furnishings are depreciated differently – property is often rented “furnished”. You may deduct the cost of the furnishings but make sure you calculate the deduction properly. Residential rental property is depreciated over 27 ½ years while furniture is depreciated over just five years.
  5. Failing to document – if it isn’t in writing is doesn’t count! Everything from your original lease agreement to the cost of replacing a lost key should be documented in writing. Not only does this ensure that you will get credit for all your allowable deductions but is also protects you in the event of an audit by the Internal Revenue Service.

By avoiding these five common rental income tax mistakes you can dramatically reduce the chances of an error on your tax return.

If you are tired of overpaying taxes or even worrying about taxes, call 510-222-5800 and ask for Navjeet.  Our goal is to lower your taxes within the letter of the law and make the process stress free.

 

Chahal & Associates is a Bay area tax and accounting firm.  We have three convenient offices to service the Bay area, Emeryville, San Rafael and Pinole. Our firm provides small business accounting services, payroll and a variety of tax services ranging from international tax to IRS Problem Resolution to simple tax preparation.  For business owners seeking to establish a business within the United States, we also provide establishing United States Operations, High Net Worth Immigration Planning, Expatriate Taxes, and Resident and Non-Resident Alien Tax Services.