In order to capture some commonly overlooked tax deductions, small business owners need to provide extra details to their tax preparers. A Registered Tax Return Preparer rendering advice about this record keeping is certain to have a growing clientele.
Some tax deductions require particular records that business owners do not automatically supply. By asking the right questions when you become a tax preparer, you will obtain uncommon deductions representing significant tax savings. Pointing out this value of your effort leads to loyal long-term client relationships.
Purchases of new equipment are the primary matters that stump business owners. They think of all costs as current expenses. But the cost for capital goods is treated differently than other expenses. You need itemized details about capital goods in order to correctly calculate the tax deduction. Tax preparer jobs involve knowing how to maximize the deduction of capital expenditures.
The cost for capital purchases is deductible in the first year of service under certain conditions. This is the Section 179 deduction. There is a maximum for each business plus the deduction cannot exceed business profit. The Section 179 threshold is frequently changed and was increased for 2010 and 2011, but returns to $125,000 for 2012.
Another avenue for deducting a substantial amount of cost is bonus depreciation in the purchase year. This is a percentage of cost that is deductible off the top before depreciating the remainder over several years. After a temporary increase of bonus depreciation to 100 percent through 2011, it returns to 50 percent for 2012.
Your tax class study allows you to keep up with changes in how new capital equipment is deducted. A related matter is deduction of software purchases. When software is bundled with acquisition of computer hardware, the entire system is treated together for depreciation over 5 years. However, Section 179 is also available to entire systems. Separately purchased off-the-shelf software is not deductible using Section 179; but, it is depreciated over only 3 years.
An RTRP should go over the list of old capital assets that were replaced by new purchases. Tax deduction for charitable contributions is available when old computers or office furniture is donated to a nonprofit organization. However, the deduction is limited to any amount of the original cost that is not yet depreciated at the time of the gift.
Charitable contributions are only deducted with other business expenses by regular C corporations. Partnerships, S corporations, and proprietorships pass through charitable deductions to the individual tax returns of the business owners.
An often overlooked deduction is amounts paid out-of-pocket by business owners during continuing education seminars or conferences. When traveling overnight for continuing education, tax deductions are available for money spent on such things as meals, tips, cab fares, and parking fees. These small costs can add up. The individual traveler usually pays them despite the business paying for the seminar or conference. Helping business owners learn to keep track of these amounts adds to your value as a tax adviser.
IRS Circular 230 DisclosurePursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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By Sawyer Adams
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