Small Business Tax Errors

Accidentally failing to comply with tax laws, violating tax codes, or filling out forms incorrectly can leave taxpayers and their businesses open to possible penalties. The IRS encourages small businesses to explore using a reputable tax preparer like a certified public accountant to help with their tax situation.

Being aware of common mistakes can also help tame the stress of tax time. Here are a few mistakes small business owners should avoid:

Underpaying estimated taxes
Business owners should generally make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. If they don’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty.

Depositing employment taxes
Business owners with employees are expected to deposit taxes they withhold, plus the employer’s share of those taxes, through electronic fund transfers.  If those taxes are not deposited correctly and on time, the business owner may be charged a penalty.

Filing late
Just like individual returns, business tax returns must be filed in a timely manner. To avoid late filing penalties, taxpayers should be aware of all tax requirements for their type of business the filing deadlines.

Not separating business and personal expenses
It can be tempting to use one credit card for all expenses especially if the business is a sole proprietorship. Doing so can make it very hard to tell legitimate business expenses from personal ones. This could cause errors when claiming deductions and become a problem if the taxpayer or their business is ever audited.     

Source: The IRS

Will You Owe Tax?

Those who need to make an estimated tax payment for 2019 should remember that the fourth quarter payment is due Wednesday, January 15, 2020.


These taxpayers will want to check to see if their 2019 federal income tax withholding will unexpectedly fall short of their tax liability for the year. They can check this by using the Tax Withholding Estimator on IRS.gov.

Before using the Tax Withholding Estimator, taxpayers should gather their most recent pay stubs and income documents from all sources. They should gather documents related to pensions, annuities, Social Security benefits and self-employment income. They should also have a copy of their 2018 federal tax return. This will help estimate 2019 income and answer other questions asked during the process.

If a taxpayer follows the recommendations at the end of the Tax Withholding Estimator and changes their withholding for 2019, they should recheck their withholding at the start of 2020. A withholding change made in 2019 may have a different full-year impact in 2020. So, if a taxpayer does not file a new Form W-4 for 2020, their withholding might be higher or lower than they intend.

Taxpayers should remember that the Tax Withholding Estimator’s results will only be as accurate as the information provided. People with more complex tax situations should not rely solely on the results of the withholding estimator. 

Source: The IRS

Final 2020 W-4 Available

The final version of the 2020 Form W-4, Employee’s Withholding Certificate (pdf) is now available on IRS.gov.

The new W-4 form better incorporates the changes ushered in by the Tax Cuts and Jobs Act allowing employees to more accurately estimate the amount of tax they ask their employers to withhold from their paychecks beginning in 2020. In addition, the goal of the new design is to balance simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors.

A few of the visual changes that were made in the last draft shared include:

·         it is now a full page

·         there are no withholding allowances (which is why the title of the form changed to “Employee’s Withholding Certificate”)

·         steps 1 through 5 to guide employees through the form

·         instructions, worksheets, and tables follow the first page

Changes since the last draft include minor edits to verbiage, but more notably, on page 2, under “Your Privacy,” more language was added to help the taxpayer understand exactly what checking the box in step 2(c) may do to withholdings.

The IRS encourages all payroll professionals to become familiar with the new form now so that they can help employers and employees with proper withholding in 2020.

The new Publication 15-T, Federal Income Tax Withholding Methods, to be released in mid-December for use with the new 2020 Form W-4, will provide the employer steps to figure federal withholding.

Go to About Form W-4 on IRS.gov for additional information.

Changes to QuickBooks Payroll

We received a letter from QuickBooks regarding changes to their payroll packages.  Here are some helpful highlights from QuickBook's letter: Here's a summary of changes you will experience, effective on or after March 1, 2020: Product Name Changes Previous Name New Name QuickBooks Online Enhanced Payroll (Self Service) QuickBooks Online Payroll Core QuickBooks Full Service Payroll QuickBooks Online Payroll Premium New Feature Highlights More information about these features here. QuickBooks Online Payroll Core QuickBooks Online Payroll Premium Full-service payroll, including automated tax and forms Premium time tracking by TSheets to run payroll faster and bill more Auto Payroll for salaried employees on direct deposit Expert Setup Review to ensure your setup is done right Access to health benefits for you and your team Access to an HR support center powered by Mammoth New Price Structures QuickBooks Online Payroll Core QuickBooks Online Payroll Premium Base Fee $45/month $75/month Wholesale Base Fee $22.50/month 50% off retail price for lifetime of subscription $37.50/month 50% off retail price for lifetime of subscription Employee Fee $4/month per employee $8/month per employee Contractor Fee $4/month per contractor payment via direct deposit $8/month per contractor payment via direct deposit For more details on pricing, including discounts for companies with more than 10 employees, please refer to this Guide to QuickBooks Online Payroll: transition to new lineup. This is just a snapshot of the new features available to you and your clients. For more information on QuickBooks Online Payroll Core and Premium, as well as our new product, QuickBooks Online Payroll Elite, check out our in-depth guide. There's nothing you need to do now—we'll monitor the transition closely to ensure there are no interruptions your business or your clients'. Learn more about what you will experience in our Guide to QuickBooks Online Payroll: transition to new lineup. Reminder: If who are directly billed by Intuit, you may upgrade, manage or cancel your subscription at any time by visiting Account and Settings and selecting Billing & Subscriptions.

Make Sure Your Donations are Tax Deductible

It’s that time of year when taxpayers are thinking about how they want to give back, and many taxpayers will want to donate to a charity that means something to them. The IRS has a tool that may help them make sure their donations are as beneficial as possible.

Tax Exempt Organization Search on IRS.gov is a tool that allows users to search for tax-exempt charities. Taxpayers can use this tool to determine if donations they make to an organization are tax-deductible charitable contributions. 

Here are some things to know about the TEOS tool:

• It provides information about an organization’s federal tax status and filings.
• It’s mobile device friendly.
• Donors can use it to confirm that an organization is tax-exempt and eligible to receive tax-deductible charitable contributions.
• Users can find out if an organization had its tax-exempt status revoked.
• Organizations are listed under the legal name or a “doing business as” name on file with the IRS.
• The search results are sortable by name, Employee Identification Number, state, and country.
• Users may also download entire lists of organizations eligible to receive deductible contributions, auto-revoked organizations and e-Postcard filers.

Taxpayers can also use the Interactive Tax Assistant, Can I Deduct my Charitable Contributions? to help determine if a charitable contribution is deductible.

Source: The IRS

Filing 1099's

The deadline for issuing 1099’s to independent contractors is approaching.  Do you know who you’ve paid & how much?  Most people don’t usually start thinking about issuing 1099’s until January, but it’s not too early to start now.  

Here are a few steps you can take to prepare for this deadline:

• Gather all W-9’s that have been received
• Make a list of all non-corporations that were paid more than $600 for services or rent in 2019
• Track down any missing W-9’s
• Gather any IRS notices you received regarding past 1099’s filed

If you use QuickBooks to track your finances, reconciling your bank and credit card accounts can help you determine an accurate number for your independent contractor payments.

1099’s need to be filed by no later than January 31^st, 2020.  A 1096 needs to be filed along with most types of 1099 forms.

Because there is no extension to this tax deadline, the process can often get frantic.  Don’t let that be you this January, and start preparing today.

Apply for Tax Exempt Status

Some taxpayers think simply creating a nonprofit automatically means an organization is tax exempt. There’s more to it than that.

To become a tax-exempt nonprofit, there are few things the group must do up front. An organization must determine whether it’s a trust, corporation or association. They then must apply for tax-exempt status with the IRS and be approved. This process includes these steps.

1. Gather documents about the organization

An organization applying for tax-exempt status must have organizing documents.  Each application must be accompanied by an exact copy of the organizing documents, except for Form 1023-EZ filings.

These documents include:

• Articles of incorporation for a corporation
• Articles of organization for a limited liability company
• Articles of association or constitution for an association
• Trust agreement or declaration of trust

If the organization’s name is legally changed by an amendment to these documents, also attach a copy of that amendment to the application.

2. Determine state’s registration requirements

State government websites have useful information for tax-exempt organizations. On these sites, they can find tax info and registration requirements for charities.

3. Get an employer identification number for the new organization

Organizations can apply for an EIN online, by fax or by mail.

An organization must be legally formed before applying for an EIN. Nearly all organizations will see their tax-exempt status terminated if they fail to file a required tax return or notice for three years in a row.

4. Submit your tax-exempt application

Use Form 1023 to submit your tax-exempt application. Certain small organizations can use Form 1023-EZ to submit for tax-exempt status.

Source: The IRS

Child Tax Credit

• The maximum amount of the credit is $2,000 per qualifying child.
• Taxpayers who are eligible to claim this credit must list the name and Social Security number for each dependent on their tax return.
• The child must be younger than 17 on the last day of the tax year, generally Dec 31.
• The child must be the taxpayer’s son, daughter, stepchild, foster or adopted child, brother, sister, stepbrother, stepsister, half-brother or half-sister. An adopted child includes a child lawfully placed with them for legal adoption.
• The child must have not provided more than half of their own support for the year.
• The taxpayer must claim the child as their dependent on their federal tax return.
• The child cannot file a tax return for the same year with the status married filing jointly, unless the only reason they are filing is to claim a refund.
• The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
• In most cases, the child must have lived with the taxpayer for more than half of 2019.
• In some cases, a taxpayer qualifies and gets less than the full credit. These taxpayers must have earned income of at least $2,500 to receive a refund, even if they owe no tax, with the additional child tax credit.
• The credit begins to phase out at $200,000 of modified adjusted gross income. This amount is $400,000 for married couples filing jointly.

Source: The IRS

The New W-4

The IRS released the second draft of the 2020 W-4 in mid-August. It's also said that the final form will not vary significantly from this draft.

Since withholding allowances are suspended for the foreseeable future, the IRS removed the word "Allowance” from the title of the form and the lines on the form on which employees can indicate them. Instead, the draft is built on five "steps.” Employees with the simplest tax situation—single, one job, no tax dependents, no other income or deductions—need only complete Steps 1 and 5. Steps 1 and 5 are the only mandatory steps.

Step 1: Enter Personal Information

Similar to the 2019 W-4, employees enter their names, addresses and tax filing status.

What's new: The draft eliminates the checkbox for married, withhold at the single rate, but adds a checkbox for heads of households. However, married couples can still check the box in Step 1c for single, married filing separately (even if they're joint filers) if they want to increase their withholding, since there's no mandate that employees change their W-4 status once they get married. Divorce is different: Couples who divorce must refile their W-4s within 10 days, if they were claiming married status.

Step 2: Multiple Jobs or Spouse Works

This step is optional for employees to complete.

Employees may account for up to two jobs (either their own second job or their spouse's job) by checking the box in this step. By checking this box, employees will increase their withholding on a pay period basis by about 50%.

Step 3: Claim Dependents

This step is optional for employees to complete.

Employees who choose to take advantage of child and dependent care credits and other credits (e.g., the education credit) may complete this step. This is an annual reduction in employees' tax liability for the year, and ultimately, their pay period withholding. Warning: The figures in Step 3 are geared toward claiming dependent credits. Employees who want to claim other tax credits should estimate the value of those credits.

Step 4: (optional) Other Adjustments

Employees account for other income, like capital gains, on Line 4a and other deductions on Line 4b. Employees increase the annual amount of wages subject to withholding by the amount shown in Line 4a and decrease the annual amount of wages subject to withholding by the amount shown in Line 4b.

Employees indicate any additional withholding to you on Line 4c. Currently, employees indicate additional withholding on Line 6.

Employees may claim an exemption from withholding by writing the word Exempt underneath Line 4c. Currently, employee write the word Exempt on Line 7 to claim an exemption form withholding.

Step 5: Sign here

Employees sign the form under penalties of perjury. Employees also date the form.

Property Lien Scam

With scam artists hard at work all year, taxpayers should watch for new versions of tax-related scams. One such scam involves fake property liens. It threatens taxpayers with a tax bill from a fictional government agency.
Here are some details about the property lien scam that will help taxpayers recognize it:

• This scheme involves a letter threatening an IRS lien or levy.
• The scammer mails the letter to a taxpayer.
• The lien or levy is based on bogus overdue taxes owed to a non-existent agency.
• The non-existent agencies might have a legitimate-sounding name like the “Bureau of Tax Enforcement.” There is no such agency.
• This scam may also reference the IRS to confuse potential victims into thinking the letter is from a real agency.

For anyone who doesn’t owe taxes and has no reason to think they do should:

• Contact the Treasury Inspector General for Tax Administration to report the letter. The taxpayer should use their IRS Impersonation Scam Reporting web page. When reporting the scam, they should include the key words “IRS Lien.”
• Scan a document received as a letter or fax, and send it to phishing@irs.gov. 
• Report it to the Federal Trade Commission using the FTC Complaint Assistant on FTC.gov.
• Report it also to the FBI’s Internet Crime Complaint Center, known simply as IC3.

More information:
Tax Scams/Consumer Alerts
How Do You Report Suspected Tax Fraud Activity?

Source: The IRS

Taxpayer Preparation for Natural Disasters

Natural disasters can – and do – happen at any time. Whether it’s a hurricane, fire, flood, earthquake or tornado, there are things people can do to prepare in advance of a disaster.

Here are several links that can help taxpayers before and after a disaster:

Reconstructing records after a disaster; IRS provides tips to help taxpayers
This fact sheet helps people who are facing the challenge of reconstructing their financial records after a disaster. It covers how to properly document a tax-deductible loss.

Tax relief in disaster situations
This page features links to disaster resources. They walk taxpayers through information that will help them after a disaster. This page also links to local news releases and frequently asked questions.

Around the nation
This page highlights news specific to local areas. This includes disaster relief and tax provisions that affect certain states.

FAQs for disaster victims
Users will find links to several different pages of FAQs. Each set of FAQs is about a specific topic to help people after a disaster.

Publication 2194, Disaster Resource Guide for Individuals and Businesses
This resource guide provides information for individuals and businesses affected by a disaster. It also covers the help available for disaster victims. The guide can help taxpayers claim unreimbursed casualty losses on property that was damaged or destroyed.

Publication 584, Casualty, Disaster, and Theft Loss Workbook
This workbook helps individual taxpayers figure the loss on their property because of a disaster, casualty or theft.

Publication 584-B, Business Casualty, Disaster, and Theft Loss Workbook
This workbook helps businesses figure the loss on business property because of a disaster, casualty or theft.

Publication 547, Casualties, Disasters and Thefts
This publication explains the tax treatment of casualties, thefts and losses.

More information:
Publication 5307, Tax Reform Basics for Individuals and Families

Source: The IRS

College Tuition Means Tax Benefits

Taxpayers who pay for higher education in 2019 can see these tax savings when they file their tax returns next year. If taxpayers, their spouses or their dependents take post-high school coursework, they may be eligible for a tax benefit.

There are two credits available to help taxpayers offset the costs of higher education, the American opportunity tax credit and the lifetime learning credit.

To be eligible to claim the American opportunity tax credit, or the lifetime learning credit, a taxpayer or a dependent must have received a Form 1098-T from an eligible educational institution.

The American opportunity tax credit is:

• Worth a maximum benefit up to $2,500 per eligible student.
• Only for the first four years at an eligible college or vocational school.
• For students pursuing a degree or other recognized education credential.
• Partially refundable. This means if the credit brings the amount of tax owed to zero, 40 percent of any remaining amount of the credit, up to $1,000, is refundable.

The lifetime learning credit is:

• Worth a maximum benefit up to $2,000 per tax return, per year, no matter how many students qualify.
• Available for all years of post-secondary education and for courses to acquire or improve job skills.
• Available for an unlimited number of tax years.

Reference: The IRS

Starting A Business?

The IRS Video Portal has videos with information on a wide range of topics.  If you're thinking of starting a business, here are some videos that might be helpful to you.

• Tips for new businesses
• Business taxes for the self-employed
• Who needs to file Schedule C and how to do it?
• Things to ask an accountant
• Avoiding the biggest tax mistakes

Source: The IRS

Home Office Deduction

Taxpayers who use their home for business may be eligible to claim a home office deduction. It allows qualifying taxpayers to deduct certain home expenses on their tax return. This can reduce the amount of the taxpayer’s taxable income.

• The home office deduction is available to both homeowners and renters.
• There are certain expenses taxpayers can deduct. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent.
• The term "home" for purposes of this deduction:
• Includes a house, apartment, condominium, mobile home, boat or similar property.
• Also includes structures on the property. These are places like an unattached garage, studio, barn or greenhouse.
• Doesn’t include any part of the taxpayer’s property used exclusively as a hotel, motel, inn or similar business.
• There are two basic requirements for the taxpayer’s home to qualify as a deduction:
• There must be exclusive use of a portion of the home for conducting business on a regularly basis. For example, a taxpayer who uses an extra room to run their business can take a home office deduction only for that extra room so long as it is used both regularly and exclusively in the business.
• The home must be the taxpayer’s principal place of business. A taxpayer can also meet this requirement if administrative or management activities are conducted at the home and there is no other location to perform these duties. Therefore, someone who conducts business outside of their home, but also uses their home to conduct business may still qualify for a home office deduction.
• Expenses that relate to a separate structure not attached to the home will qualify for a home office deduction. It will qualify only if the structure is used exclusively and regularly for business.
• Taxpayers who qualify may choose one of two methods to calculate their home office expense deduction: 
• The simplified option has a rate of $5 a square foot for business use of the home. The maximum size for this option is 300 square feet. The maximum deduction under this method is $1,500.
• When using the regular method, deductions for a home office are based on the percentage of the home devoted to business use. Taxpayers who use a whole room or part of a room for conducting their business need to figure out the percentage of the home used for business activities to deduct indirect expenses.  Direct expenses are deducted in full.

Source: The IRS

Taxpayer Who Itemize

Taxpayers who itemize their deductions may be doing things that will affect the tax returns they file next year.
The higher standard deduction means fewer taxpayers are itemizing their deductions. However, taxpayers who still plan to itemize next year should keep these tips in mind:

• Deducting state and local income, sales and property taxes. The deduction that taxpayers can claim for state and local income, sales and property taxes is limited. This deduction is limited to a combined, total deduction of $10,000. It is $5,000 if married filing separately. Any state and local taxes paid above this amount can’t be deducted.
• Refinancing a home. The deduction for mortgage interest is also limited. It’s limited to interest paid on a loan secured by the taxpayer’s main home or second home. For homeowners who choose to refinance, they must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described in the next bullet under “buying a home.”
• Buying a home. People who buy a new home this year can only deduct mortgage interest they pay on a total of $750,000 in qualifying debt for a first and second home. It’s $375,000 if married filing separately. For existing mortgages, if the loan originated on or before Dec. 15, 2017, taxpayers continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.
• Donating items and deducting money. Taxpayers must itemize deductions to deduct charitable contributions and must have proof of all donations.
• Deducting mileage for charity. Driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2019.

Source: The IRS

Registered Agent Responsibilities

What are my duties as a registered agent or as an appointed agent?

A registered or appointed agent’s duties are:

• To receive or accept, and forward to the represented entity at the address most recently provided to the registered agent by the represented entity, or otherwise notify the represented entity at that address regarding, any process, notice, or demand that is served on or received by the registered agent; and
• Provide the notices required or permitted by law to be given to the represented entity to the address most recently provided to the registered agent by the represented entity.

Who can be a registered agent?

Generally, an individual Texas resident or an organization that is registered or authorized to do business in Texas with a business office at the same address as the entity's registered office may consent to serve as the registered agent. Although an officer, owner, or employee may serve as an entity's registered agent, an entity may not serve as its own registered agent. An entity may contract for the provision of registered agent services from another business entity, such as a service company. The secretary of state, or other governmental agency or authority, cannot serve as an entity's registered agent

My registered agent resigned or moved. Do I need to file anything with the secretary of state?

Yes. A domestic or foreign filing entity is required to continuously maintain a registered agent and registered office in Texas. Failure to do so may result in the involuntary termination of a domestic filing entity or in the revocation of a foreign filing entity's registration. Therefore, it is important that an entity file a statement of change of registered agent and/or registered office with the secretary of state to keep the name of the registered agent and the registered office address current. See Form 401 (Word, PDF).

Source: Texas Secretary of State

2020 Draft of the W-4

The Internal Revenue Service released the 2020 draft for Form W-4 on May 31, 2019.

https://www.irs.gov/pub/irs-dft/fw4--dft.pdf

For most taxpayers, the draft of the 2020 W-4 intends to simplify the process of reporting the amount of federal withholding an employee wants from each paycheck. Anyone who wishes for a more accurate calculation of their federal withholding can answer a set of straightforward questions on the worksheets.

Two other ways to handle withholding are to use worksheets for individuals with other sources of income who wish to calculate additional withholding amounts. The employer will not be provided these sheets, thus assuring the taxpayer’s privacy. An employee can also use a Withholding Calculator to determine the most accurate withholding.

In the draft 2020 W-4, there are no more allowances but, rather, a shift toward dependents and deductions to align with the new tax law.  For example, the Child Tax Credit increased to $2,000 for children younger than 17 (and $500 for other dependents). Some itemized deductions that are still on the books include qualifying home mortgage interest, charitable contributions, state and local taxes (SALT), and medical expenses in excess of 10 percent of one’s income. However, due to the changes in the tax law, significantly fewer people will itemize deductions because of the increase to the standard deduction, as well as the cap to SALT ($10,000). 

Source: Paychex

How to Handle Multiple Rental Activities and the 199A Deduction

There’s a lot of confusion out there around your rental activity and Section 199A. Your Section 199A considerations multiply when you have multiple rental activities. Here’s what you need to consider:

·         Are your rental activities multiple trades or businesses, or one trade or business?

·         Can you aggregate the rentals for Section 199A purposes? Do you want to?

·         How does the Section 199A rental safe harbor impact your Section 199A deduction if you use it?

Whether your rental activities are each a trade or business, or they constitute one trade or business, is inherently based on the facts of your particular situation. The IRS also believes that multiple trades or businesses will generally not exist within an entity unless it can use different methods of accounting for each trade or business under the Section 466 regulations. These regulations explain that you can’t consider a trade or business separate and distinct unless you keep a complete and separable set of books and records for that trade or business.

This determination is an important factor for you if any one rental activity (taken individually) doesn’t rise to the level of a trade or business, but all the rental activities (viewed collectively) do rise to the level of a trade or business. One of the factors the IRS looks to when determining whether a rental activity is a trade or business is the number of properties rented.

Aggregation

The Section 199A regulations allow you to aggregate multiple trades or businesses such that you treat the aggregated group as one trade or business for determining your Section 199A deduction. This is an important consideration if one or more of your rental businesses have insufficient wages or un-adjusted basis in assets (UBIA) to get the maximum Section 199A deduction for that property.

The final regulations tell us you can aggregate, in most circumstances, provided that the rental activities share centralized administrative functions, such as accounting, legal, and human resources functions. The big wrinkle is the type of rental business: you generally can’t aggregate residential rental businesses and commercial rental businesses with each other because they aren’t the same type of property.

Rental Safe Harbor

Along with the final regulations, the IRS gave you an optional safe harbor to deem your rental activities as qualifying for the Section 199A deduction. The safe harbor isn’t the best strategy because most rentals qualify as a trade or business anyway.

Deduct Your Costs of Sponsoring Sports Teams

Have you wondered what it takes to deduct the costs of sponsoring a sports team? What if you play on the team? Could you pay for the team travel expenses?

Revenue Ruling 70-393 states that the monies spent to outfit and support a sports team are similar to monies spent on other methods of advertising; accordingly, you may deduct them as business expenses for federal income tax purposes.

In the Strong case, Strong Construction Co. Inc. advertised its business primarily through either word of mouth or athletic sponsorships. As part of the athletic sponsorships, the corporation paid for the uniforms, logo design, hats, T-shirts, sweatpants, coats, bags, and pants for all players on its sponsored teams (broomball, softball, wrestling, etc.). The court ruled that the expenses were ordinary and necessary business expenses and that Strong could deduct them as advertising or promotion.

In the Bower case, James Bower sponsored the Lafayette Bower Housing Hustlers basketball team, and he was both an assistant coach and a player. As the Hustlers’ sponsor, Bower paid for the team’s travel, lodging, food, promotions, AAU fees, tournament fees, gym rental, and uniforms. The court noted that Bower’s sponsorship increased his commodity brokerage commissions and generated additional clients; accordingly, the court ruled that Bower’s sponsorship expenses were deductible business expenses.

TCJA Allows Bonus Depreciation on Purchase of Leased Vehicle

Before the Tax Cuts and Jobs Act (TCJA), your purchase of the vehicle you were leasing did not qualify for either Section 179 expensing or bonus depreciation. But times have changed.

The TCJA made two changes that mean 100 percent bonus depreciation is available on the vehicle you lease and then purchase, regardless of whether you purchase it during the lease term or at the end of the lease. The two technical reasons you can do this are as follows:

1.      During the lease, you had no depreciable interest.

2.      Bonus depreciation is now available on used property.

Technically, the two changes work like this:

·         While you were leasing the vehicle, you had no depreciable interest in the vehicle. The lessor depreciated the vehicle. You, the lessee, paid rent.

·         Your purchase of the vehicle that you were leasing is the purchase of a vehicle that you had NOT used under the bonus depreciation law, because you did not have a depreciable interest in it at any time.

Example. You pay $32,000 for a pickup truck that you have been leasing for business purposes. The pickup truck has a gross vehicle weight rating of 6,531 pounds, and your mileage log proves 90 percent business use. You may use bonus depreciation to deduct the $28,800 business cost of the pickup ($32,000 x 90 percent).

Note the difference: As with prior law, with Section 179 expensing, you get no additional deductions. But with bonus depreciation, you can expense your entire business cost.