Dana Lee CPA LLC Team

What happens if the car you are using for business is not title to your business and it is your personal car? In this blog we are going to discuss the situation in which your business is a corporation or an LLC that is treated for IRS purposes as an S Corporation or as a C Corporation.

If you are not sure how your LLC or your business is treated for tax purposes, check what tax form the business files with the IRS. In case that it is Form 1120S, your business is an S Corporation. If it is Form 1120, your business is a C Corporation.

Personal Car Used For Business

In this situation when you use your personal car for business, are you allowed to deduct the vehicle expenses? Business deductions like:

• gas, repairs maintenance, insurance, or even the cost of the vehicle through depreciation, or the interest you pay on the car loan can be very useful in reducing your tax.

And another question that arises is: from what bank account or credit card account do you pay these expenses? Do you use the business accounts or the personal accounts? Let’s see what happens in this situation:

• First, because the car is not under the business name, the car is not a business asset. It is a personal asset. So, you should pay all the expenses from your personal accounts.
• Second, how can you deduct the car expenses, since even though this is a personal asset, you are using it for business purposes?

Well, in this situation the business will have to reimburse you, as an owner-employee of your business, for the business vehicle usage. The business can claim an expense equal to the number of miles you drove for business for that period multiplied by the IRS mileage rate applicable for that time frame. This means two things:

First, that you will need to have a mileage log and track your miles. We did a separate blog regarding what information a mileage log should have.

And second, your business should have in place an arrangement called an employer reimbursement accountable plan.

Employer Reimbursement Accountable Plan

The employer reimbursement accountable plan will allow you to submit a mileage reimbursement request to your own Corporation or LLC. Having an employer reimbursement accountable plan is very important. Because if you do not have such a plan, the IRS can treat any mileage reimbursements as wage income to you. In this case, you will have to pay unnecessary payroll taxes or you can get into other complications.

Now, an employer reimbursement accountable plan is an arrangement that needs to respect three rules:

First, you must have paid or incurred deductible expenses while performing services as an employee of your employer, in our case your own company.
Since we said that your business is treated as an S Corporation or a C Corporation, you are both an owner and an employee of your own business. As a sideline, you should always pay yourself a reasonable salary for the work that you do for your corporation.
And since you are using the vehicle for business purposes, any mileage reimbursement for your business trips should satisfy this first condition.

Second, you must return any excess reimbursement or allowance within a reasonable period of time.
And third, you must adequately account to your employer, so to your own company, for these expenses within a reasonable period of time. This is where the mileage log comes into play. You should also keep documentation regarding the cost of the car and any improvements and the date you started using it for business.

Reasonable Period of Time

Now let’s see what the IRS means to be a reasonable period of time.
The IRS says that a reasonable period of time depends on the facts and circumstances of your situation. But since this is a very murky definition, the IRS came up with some time frames that the IRS will treat as taking place within a reasonable period of time. Let’s see what these are:

• You receive an advance within 30 days of the time you have an expense.
• You adequately account for your expenses within 60 days after they were paid or incurred.
• You return any excess reimbursement within 120 days after the expense was paid or incurred.
• You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.

If you do not fall under these timelines doesn’t mean that you don’t have an accountable plan. It just means that the IRS will evaluate your plan based on your facts and circumstances. But of course, the safest way is to fall within these timelines.

Conclusion

For more information on the employer reimbursement accountable plan see Publication 463.
One more thing I want to mention before wrapping up this blog: this situation where you are using your personal vehicle for business, might not be an ideal situation. That’s because a bigger deduction might result from using the actual car expenses instead of the mileage reimbursement. Whenever possible you should have the vehicle purchased under the business name.

Tax regulations can be complicated. That is why, it is very important when you have a business to seek professional advice.
If you are in need of a good CPA firm contact us!

You can check our YouTube channel for more subjects that you might find useful.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

There is a presumption that an activity is engaged in for profit if the activity is profitable for three years of a consecutive five-year period. If you show prolonged business losses, in consecutive years, you run into the risk of drawing IRS’ attention.

Now if you open a business and you show losses for a couple of consecutive years, in the initial startup phase that is normal, but of course you should document your efforts in making your new business profitable and you should maintain complete and accurate books and records. This is really important because otherwise you run into the risk of the IRS reclassifying your business activity to be a hobby.

Hobby activities have a very disfavorable tax treatment. Any expenses allowed cannot be more than the income from the hobby activity and for tax years 2018 through 2025, you pay tax on the hobby gross income without being allowed to reduce that income by your associated expenses, except for the cost of goods sold.

Factors In Determining If Your Activity Is For Profit

There are various factors in determining if your activity is for profit or not, but let me give you some examples of these factors:

• Is your activity conducted like a business?
• Do you maintain complete and accurate books and records?
• Do you do the activity in the same way as similar profitable activities?
• Do you change your methods of operation to improve profitability?
• Do you advertise or promote the activity?
• What is your expertise in the activity?
• Is the activity a main source of income for you?
• Does the activity have elements of personal pleasure or recreation?
• Do you spend much of your personal time and effort on the activity, particularly if the activity does not have personal or recreational aspects?
• Have you pursued the activity full-time or part-time?
• Have you made or expect to make a profit?
• Do any losses from the activity fall beyond your control?
• Do your losses continue beyond the period which would be necessary to bring your activity into profitable status?

Some of these factors came into play for an ER doctor. He got into trouble with the IRS due to the hobby lost rules, among other things. You can see his story by clicking on the link below:
https://youtu.be/yH2dX-Wqc6Q

Tax regulations can be complicated. That is why, it is very important when you have a business to seek professional advice.
If you are in need of a good CPA firm contact us!

You can check our YouTube channel for more subjects that you might find useful.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you have tax debt, you probably feel like you have a heavy chain around you, but there’s a beacon of hope, called the Offer in Compromise program. This is a little-known gem within the tax code.

Let’s see what this program does, what are some of the requirements and what forms you need to submit.

About The Offer In Compromise Program

First of all, this program will not erase your tax debt, but it will allow you to settle your debt for less than the full amount owed. It is a legitimate option if full payment would cause you financial hardship or if you can’t pay your full tax liability.

The OFFER IN COMPROMISE program is not a one-size-fits-all solution, but rather a carefully structured agreement tailored to your unique financial situation. The IRS will take into account your ability to pay, your income, expenses, and your asset equity. The IRS generally approves an offer when it represents the most they can expect to collect from you within a reasonable period of time.

Eligibility

To be eligible for an OFFER IN COMPROMISE, there are several boxes you’ll need to tick: filing all required tax returns, including an extension for the current year, if the current return was not filed yet; making all your required estimated tax payment; and, you cannot be in an open bankruptcy proceeding.

If you have a business, it’s also crucial to have made federal tax deposits for the current and past two quarters before applying.

The application process involves submitting a detailed package, including Forms 433 and 656. There’s also a non-refundable $205 application fee and an initial payment that varies depending on the payment option you choose: lump sum cash or periodic payment.

Keep in mind that the OFFER IN COMPROMISE is a complex process and is not a quick fix. The application can take a long time to be reviewed. Also, it’s essential you explore all other payment options before submitting your offer. To see if you could qualify, click here.

You can check our videos on our YouTube channel.

In the meantime, if you encounter any issues with your taxes or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you purchase a used, environmentally-friendly vehicle that meets the necessary criteria, starting from January 1, 2023, you may qualify for a tax credit known as the used clean vehicle credit. As a result, this means that you could potentially save money on your taxes because of your clean vehicle purchase.

What Should You Know?

In regards to this credit, it’s important for you to know that:

• you will receive a credit that’s 30% of the sale price; however, the maximum amount you can receive as credit is $4,000, even if 30% of the sale price exceeds this amount,
• if you purchased the vehicle before the year 2023, it won’t be considered eligible for this credit,
• you should be an individual who bought the vehicle for personal use, not to sell it again,
• you shouldn’t be the first owner of the vehicle,
• you shouldn’t have received a credit for buying a used clean vehicle in the 3 years before the date you bought this one,
• in addition, you can’t be listed as a dependent on someone else’s tax return.

What Are the Limits?

Your modified adjusted gross income (AGI) should not be more than:

• • $150,000 if you’re married and filing jointly or if you’re filing as a surviving spouse,
  • $112,500 if you’re filing as head of a household,
  • $75,000 for everyone else.

In conclusion, when you buy a vehicle, you can claim a credit, in some circumstances. The amount of this credit is based on your Adjusted Gross Income (AGI) from either the year you bought the vehicle or the previous year. You should use the year where your AGI is lower. If your income falls below a certain limit in either of these two years, you are eligible to claim the credit.

What Clean Vehicles Qualify for this Credit?

To be eligible, a vehicle needs to meet the following criteria:

• you purchased the vehicle from a dealer,
• it should cost $25,000 or less,
• the model year of the vehicle should be at least 2 years older than the year you’re buying it; so, if you’re buying in 2023, the vehicle should be a 2021 model or older,
• the vehicle should not have been sold to a qualified buyer after August 16, 2022,
• the vehicle’s gross weight should be less than 14,000 pounds,
• it should be a Fuel Cell Vehicle (FCV) or a plug-in Electric Vehicle (EV) with a battery capacity of at least 7 kilowatt hours,
• the vehicle should be primarily used in the United States.

To see if your vehicle is eligible for this credit, click here. If you are eligible, you should complete Form 8936 and file it with your tax return. Furthermore, it is important to know that when you purchase the vehicle, the dealer is required to provide you with a statement with the following information:

• the dealer’s name and taxpayer ID,
• name and taxpayer ID of the buyer,
• VIN of the vehicle,
• battery capacity of the vehicle,
• the sale date,
• the sales price of the vehicle,
• maximum credit allowable for the vehicle being sold,
• for sales beginning January 1st, 2024, the amount of any transfer credit applied to purchase,
• a declaration under penalties of perjury from the dealer.

In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

How Can You Switch to QuickBooks Online?

If you want to switch from QuickBooks Desktop to QuickBooks Online, you can use the conversion tool to transfer your company file. Here are the steps you need to follow:

• sign up for a QuickBooks Online account that suits your business needs,
• update your QuickBooks Desktop to the latest version and open your company file,
• export your company file to QuickBooks Online by following the instructions shown.

What Is the Conversion Tool?

The QuickBooks Conversion Tool is a free tool that enables you to convert files from QuickBooks Desktop to QuickBooks Online. This tool can be useful if you want to switch to QuickBooks Online.

Back-up Your Company Data

Before you start the conversion, make sure you have a backup of your company file in case something goes wrong. Also, be aware that some features and data may not work in QuickBooks Online, such as multicurrency and third-party apps. You should review the file size requirements and data preparation before you export your file.

To begin the conversion process, open QuickBooks Desktop, go to Company, choose Export Company File to QuickBooks Online. If you don’t have access to your QuickBooks Desktop or it’s out of date, don’t worry, anyone with a QuickBooks Desktop file can use this tool.

What Should You Do Before Using This Tool?

Before using the conversion tool, you should check:

• your chart of accounts balances are up to date and accurate,
• your balance sheet matches your latest tax return,
• you reconciled your bank and credit statements,
• you categorized any open transactions,
• finished any outstanding payroll runs or payroll tax payments.

Open The Online Tool

• select the link for your QuickBooks version:
  • QuickBooks Pro/Premier
  • QuickBooks Enterprise
  • QuickBooks for Mac
• select Get Started, then sign in with your Intuit Account
• once signed in, the online tool will allow you to upload your company file

Upload your company file

• follow these steps to upload your company file:
  • select the file icon and then select “Temporary Files”
  • select “Upload Files” then browse to the company file (.QBW) you want to move
  • close the pop-up once your company file is uploaded
  • select “Show uploaded file” to see your uploaded company file

In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you own a restaurant business, you may be eligible for a special depreciation allowance that can help you reduce your taxable income and increase your cash flow. Find out in this blog post what you need to know about this tax benefit and how to claim it.

What Is The Special Depreciation Allowance?

The special depreciation allowance, also known as bonus depreciation, is a provision in the tax code that allows you to deduct a certain percentage of the cost of qualified property in the year you place it in service, instead of spreading it over several years. This means you can recover the cost of your investment faster and lower your tax bill.

What Property Qualifies For The Special Depreciation Allowance?

For your restaurant business, in order to qualify for the special depreciation allowance, your business property must meet some criteria:

• it must be eligible for the regular depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS); this includes most tangible personal property used in a trade or business, such as furniture, equipment, vehicles, computers, etc.,
• it must have a recovery period of 20 years or less under MACRS; this excludes most real property, such as buildings and land improvements (there are some instances when you can claim bonus depreciation for qualified real property),
• you can buy new or used property; for the used property there are some requirements:
  • you or your predecessor did not use the property within the past 5 calendar years before you acquired it,
  • you must not acquire it from a related party;
• it must be acquired and placed in service within the specified time frame; for example, if you want to claim the 80% allowance for 2023, you must have acquired and placed the property in service between January 1, 2023, and December 31, 2023,
• computer software that is readily avilable for purchase, also qualify for bonus depreciation,
• you must not place the property in service and dispose of it in the same tax year,
• you can not convert the property from business use to personal use in the same tax year,
• if you have listed property, for example a vehicle weighing 6,000 lbs. or less that you use for deliveries in your restaurant business, you must use it more than 50% for business purposes in order to be able to claim bonus depreciation.

How Do You Claim The Special Depreciation Allowance?

To claim the special depreciation allowance, you must file Form 4562, Depreciation and Amortization, with your tax return.

Bonus depreciation is the default method of depreciation for qualifying property in the year you place it in service, so if you do not want to claim it, you need to make an election. But, when you make an election to opt out of the bonus depreciation, you have to make it for an entire class of assets, not only for one asset.

The special depreciation allowance is a deduction you can take in the year you start using the property, in addition to the regular depreciation and any Section 179 deduction. Here’s the order in which you should claim these deductions:

• start with the Section 179 deduction,
• next, claim the special depreciation allowance,
• finally, claim the regular depreciation allowance.

If there’s any remaining basis, you can recover it in the following years using the regular Modified Accelerated Cost Recovery System (MACRS).

What Are Some Examples of Restaurant Property That Qualifies for The Special Depreciation Allowance?

Some examples of property that may qualify for the special depreciation allowance for restaurants are:

• kitchen appliances such as ovens, dishwashers, etc.,
• restaurant furniture, like dining tables,
• bar equipment, for example commercial coffee machines,
• delivery vehicles,
• outdoor furniture and heaters, etc.

In addition to these, if you make improvements or repairs to your restaurant location, you might also be able to claim bonus depreciation in some instances. You should consult with a tax advisor to determine if your specific property qualifies for the special depreciation allowance and how much you can deduct.

Conclusion

The special depreciation allowance is a valuable tax saving tool that can help you save money and grow your restaurant business. If you are planning to acquire or replace any property for your restaurant in the next few years, you should consider taking advantage of this opportunity as soon as possible, because this deduction is planed to phase out by 2027. The bonus depreciation percentages that can be claimed this year and in future years are:

• 60% in 2024,
• 40% in 2025,
• 20% in 2026.

Remember to keep track of your purchases and consult with a tax advisor to ensure you comply with the rules and maximize your benefits.

We are here to help our business clients use the most tax efficient strategies. We serve small businesses and real estate investors. Click here to find out more about are services.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.