Did you buy a new vehicle for your business in 2014? There’s good news on the depreciation front: The Tax Increase Prevention Act of 2014 reinstated the bonus depreciation available as a first-year deduction.
As you know, vehicle depreciation rules typically are more restrictive than those for other assets. For example, “luxury automobile” limitations generally apply to passenger vehicles that cost more than $15,800. When your business vehicle is a “luxury” passenger car rated at 6,000 pounds unloaded gross vehicle weight or less, the maximum first-year depreciation you can claim is normally $3,160. For 2014, bonus depreciation brings the total to $11,160.
For “luxury” light trucks and vans with a gross vehicle weight of 6,000 pounds or less, the maximum first year depreciation, including the bonus amount, is $11,460.
Heavy vehicles and trucks — those with a loaded gross vehicle weight of more than 6,000 pounds — aren’t subject to luxury automobile rules. In addition to bonus depreciation, you can take a section 179 expensing deduction for the cost of these vehicles. Just be aware the amount of section 179 may be limited depending on the vehicle.
Personal use of your business auto can reduce the amount of depreciation you can claim. In addition, your deduction may be disallowed if you fail to maintain a detailed mileage log of your business use.
Please call Carl Heinemann, your Chattanooga CPA, for more information.
Have you thought about your accounting method lately? The IRS has — and the result is the “repair” regulations. As you may have heard, these regulations became effective in January 2014. They control the way you record costs incurred to acquire, produce, or improve tangible property.
What do the repair regulations have to do with your accounting method? Your taxable income is generally computed using the same “method of accounting” that you apply to your books, such as cash or accrual basis. Your method of accounting also encompasses the way you treat special items, including depreciation. Since the repair regulations are essentially rules detailing whether your tangible property related expenses may be deducted or must be capitalized and therefore depreciated, the regulations affect your method of accounting.
Adoption of the new rules is mandatory. However, you have a choice as to how you comply when your total assets or your average annual gross receipts are less than $10 million. For example, you can use a simplified method. In that case, you apply the repair regulations to acquisitions and disposals of property for 2014 and future years. Alternatively, you can elect to review your treatment of past tangible property expenditures and apply the repair regulations to prior as well as future years.
Among other factors, your decision will depend on the accounting method you used for certain items. For instance, say you capitalized expenses in the past that might now be considered “replacements” under the new rules. You may realize current year tax savings by applying the repair regulations to prior years and taking a deduction now.
The new rules contain other changes, including annual elections that you must make beginning with your 2014 tax return. Please schedule an appointment with Carl Heinemann, your Chattanooga CPA, so we can help you determine the right choices for your business.
Are you concerned about employer health insurance penalties in 2015? As you know, the penalties for not offering insurance to employees were suspended for 2014 and information reporting was voluntary. That delay was temporary. The rules that apply to your business in 2015 depend on how many full- and part-time workers you employ.
For example, when the number of your employees is fewer than 50, you’re not required to provide health insurance and the “employer shared responsibility” penalties do not apply. If your workforce consists of 50-99 full-time employees, the penalties start in 2016. When you employ 100 or more workers, the penalties begin this year.
The cutoffs may be less clear than they seem. For example, when counting employees, you generally must include the hours of those who work less than full-time (currently defined as 30 hours per week). That’s because the total number of employees includes “full-time equivalents.” These are employees whose actual working hours are less than 30 per week, but whose total combined hours meet the equivalent of full-time.
One more caution when figuring how many workers you employ: For purposes of the penalties, common ownership and control of multiple businesses is considered. That means you add together the employees in all the businesses you own or control.
Be aware that the law includes other penalties that can affect your business regardless of the number of workers you employ.
Give Carl Heinemann, your Chattanooga CPA, a call if you have questions. We’ll work with your insurance specialist to make sure you’re in compliance.
You’re starting to feel overwhelmed with debt and you’re not sure how to make even the minimum payments on all those credit cards. Never fear. Plenty of credit card companies are eager to come to your aid. They’ll offer balance transfers to help you consolidate high interest accounts. They’ll provide “one low monthly payment” to simplify your finances. With their assistance, you’ll be debt-free in no time. At least that’s what the advertisements say.
But before you apply for that shiny new credit card, ask the following questions:
- What fees can I expect? You may be charged for transferring balances. The new company may assess a monthly or annual fee, regardless of whether or not you use the card for additional purchases. If you make even one late payment, that low interest rate may skyrocket and you’ll likely be charged a late fee. If you’re late more than once, both the late fee and interest rate may jump. All such terms will be laid out in your new credit card agreement. Read it before signing.
- Would a personal loan be a better option? In some cases, a credit union or bank may help you consolidate debt by offering a single loan with a fixed interest rate and term. If your credit is decent, this may be a better option than switching to a new card. Knowing that you’re required to make a fixed payment each month and that your debt will be paid off in, say, three to five years can help you from falling into the minimum payment rut.
- Should I ask family and friends for help? If a relative offers to lend money, your credit score may actually improve because balances on existing debt will be paid off. Be sure, however, to put the agreement in writing and treat the loan like any other obligation. As Shakespeare put it, “Loan oft loses both itself and friend.” Borrow from friends and family at your own risk.
- Am I willing to modify my spending habits? This, perhaps, is the most important question you can ask. If you can’t find the discipline to spend less than you make, you’ll likely end up in trouble again. In fact, studies have shown that most people who consolidate debt are struggling again within two years.
If you’d like help reviewing your debt consolidation options, give Carl Heinemann, your Chattanooga CPA, a call.
Often small businesses must rely on debt to launch operations during crucial start-up years, expand into new markets, or weather economic downturns. But getting approval for business loans can be a discouraging process. Understandably, lenders are trained to be skeptical. They look for potential risk — risk that the business may not survive or the loans won’t be paid back. One of your main tasks as a business owner is to convince lenders that your company is financially sound and those risks have been considered and mitigated.
How do you make a convincing argument? Be able to sell and support the following three “talking points”:
- You and your partners are a good risk. Lenders seek assurance that your team has the capacity to carry out a solid business plan. They’ll want evidence of strong management skills and real life experience in your company’s industry. Assuage their doubts by demonstrating that you and your partners have paid back loans in the past. Get a copy of your credit report and make sure to correct any errors before applying for a loan. If your firm has been operating for a while, consider getting a credit report for the business as well. Once you receive the loan, follow through. That way, you’ll have a solid repayment history to show potential lenders next time around.
- The loan amount makes sense. Not too much, not too little. Average loans offered by the Small Business Administration run about $300,000, but they can range from micro-loans of $5,000 to guaranteed loans in the millions of dollars. Estimating the size of the loan will depend on its expected uses — equipment, real estate, software development, and so on. Underestimate your financing needs and the company may deplete working capital too soon. Take out a loan that’s too big, and you may run into cash flow problems when it’s time to pay off the debt. So take a hard look at the business reasons for the loan and associated financial projections.
- You have “skin in the game.” Lenders want security. Should your company run into unexpected difficulties, lenders want to know that collateral supporting the loan is sufficient. Personal and business assets — everything from money in the owner’s bank account to equipment on the warehouse floor — can provide that assurance.
If you’d like help compiling a loan package or analyzing your business needs, give Carl Heinemann, your Chattanooga CPA, a call.