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Tax savings + business improvements = success

With the new year upon us, we welcome many opportunities to better ourselves while also improving our businesses. Coupling tax savings with business improvements can facilitate growth. The following are some broadly applicable strategies you may be able to use in order to decrease what you might owe in income taxes.

Training & education Expenses paid through your business are 100% deductible if they are incurred under the law to maintain your current employment (such as continuing professional education) or to maintain or improve the skills needed in your present job. As a working condition fringe benefit, the value of these expenses can generally be excluded from wages.

Gifts Let your clients and employees know you value them with an evening out or a gift expressing your appreciation. Meals and entertainment expenses are 50% deductible for income tax purposes, but business must be discussed before, during, or after the meal. You need to maintain appropriate records and the venue must promote worthwhile business discussion. If conducive to business discussion, and the other requirements are met, you could entertain in your home and deduct 50% of the cost.

Gifts worth up to $25 per recipient (a client and their family generally count as one recipient) are deductible business expenses, whether they are given to clients or other business associates. Incidental costs (engraving, packaging, insuring or shipping) generally do not count toward the $25 limit.

Work Clothes & Uniforms Employer provided work clothes and uniforms are deductible business expenses and are excludable fringe benefits if they are required for work and not suitable for everyday use.

Travel If you temporarily travel away from home for a period longer than an ordinary day’s work for business purposes, and you have an overnight stay because of the demands of your work while away, you can generally deduct the cost of ordinary (common and accepted in your trade or business) and necessary (helpful and appropriate for your business) expenses. Examples include transportation, lodging, meals, and other incidental expenses you would not have incurred otherwise.

Reasonable Meals If you’re working overtime to better serve your customers, have your company buy your dinner so you can continue working. As long as the meal is furnished for your employer’s convenience (provided so the employee will be more productive), a reasonable meal is 100% tax deductible to your business and considered a non-taxable fringe benefit to you.

Capital Expenditures Congress had a busy December passing legislation. One example is the “tax extender” bill, which you may have heard about recently.  For the 2014 tax year, business owners will be able to expense up to $500,000 worth of capital expenditures (things you would normally have to depreciate). This amount is reduced dollar-for-dollar by the cost of eligible capital expenditures made during the year in excess of $2,000,000. A bonus depreciation has also been reinstated. This provision allows for the expensing of 50% of the cost of qualifying assets.  

It is important to keep in mind that at this time, for 2015, bonus depreciation will not be available, and the expensing limitations for capital expenditures will drop to $25,000 on purchases of no more than $200,000.  However, Congress could move to extend these provisions once again.  

These ideas are only a starting point. For more comprehensive strategies and current equipment and software expensing limitations, please contact a tax professional today.

About the Authors

Jenna Grenier, CPA
McDermott & Miller, Grand Island

Jenna joined McDermott & Miller in 2007 upon graduation from UNK. She currently manages McDermott & Miller's Grand Island office.

Richard Lurk
McDermott & Miller, Kearney
Richard has worked for McDermott & Miller since 2013. He graduated from UNL College of Law after serving in the Air Force for eight years.

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