Business Tax Attributes for Costs of Computer Software

Preface: The way to be successful in the software world is to come up with breakthrough software, and so whether it’s Microsoft Office or Windows, its pushing that forward. New ideas, surprising the marketplace, so good engineering and good business are one in the same.  -Bill Gates

Business Tax Attributes for Costs of Computer Software

Businesses that have purchased or developed computer software programs for internal purposes, the following blog is for your convenience, to provide a concise review of how you may perhaps write-off the software expenses your business incurs.

Generally, you must amortize the purchase cost of computer software and AI developments over a period of three years, beginning from the month in which you placed the software into service. If the software is acquired together with the computer equipment, then you should depreciate the cost of the software over the useful life of the computer (separately stated computer hardware costs are depreciated as 5-year).

However, if you purchase software or artificial intelligence technologies with the acquisition of a trade of a business, you must amortize that software over a 15-year period. For businesses that create their own computer software or artificial intelligence technology with developers, the cost of developing the programs or software may be treated in a manner similar to research and development expenses.

Thus, qualifying expenditures may be A) deducted as a current expense, or B) capitalized and amortized using the straight-line method over a period of 36 months beginning in the month that the software is placed in service or over 60 months from the date of completion of development if a Code Sec. 174(b) election is made.

Additionally, all software development costs are included in the definition of research and experimental expenditures, effective for amounts paid or incurred in tax years beginning after 2021. All research and experimental expenditures must be amortized over 60 months, effective for amounts paid or incurred in tax years beginning after 2021.

For tax purposes, computer software is defined as a program designed to cause a computer to perform a desired function. Computer software tax rules includes programs of all classes in all forms and media and the documentation required to describe and maintain the programs.

If you are investing software implementations or artificial intelligence programs for your business, please discuss the tax attributes with your trusted tax advisor.

Five Ways You Might Be Sabotaging Your Own Marketing

Preface: You’d laugh if a cat food producer was trying to market to cats. It’s not the cats who make purchasing decisions about their food, but their owners. – Marvin Martin

Five Ways You Might Be Sabotaging Your Own Marketing

In 1855 Ralph Waldo Emerson wrote, “If a man has good corn, or wood, or boards, or pigs to sell, or can make better chairs or knives, crucibles or church organs than anybody else, you will find a broad hard-beaten road to his house, though it be in the woods.”

Over the years this has been boiled down to this pithy statement: “Build a better mousetrap, and the world will beat a path to your door.”

This seems like a simple formula (better product = sales success), but you can probably identify what is missing: how is the world going to find out about the better mousetrap? We could revise that formula this way: better product + good marketing = sales success.

Your mousetrap needs to be marketed, and that responsibility falls to you. If you’ve been a regular reader of this column, you’ve learned a lot about how to market your product service effectively and ethically.

Whether beginning marketers or experienced ones, we at times inadvertently get in the way of our own success. Here are five ways you may be sabotaging your own success– shooting yourself in your marketing foot.

Sabotage #1. Lack of a marketing plan.

The phone rings. On the line is the rep from a magazine that you advertise in. “Your deadline is today and we noticed that you have not submitted an ad for the next issue,” the rep says. “Shall we rerun your ad from the past issue?”

You remember in despair that it’s the time of year to advertise your annual sales event, but you forgot to plan advertising for it. Now you don’t have time to get the details together and submit the ad.

Being haphazard and flying by the seat of your pants is marketing sabotage. One of the many benefits of a marketing plan is that it helps you avoid situations like this. At the beginning of the year, create a document listing the due dates of all advertising and other marketing-related things.

“Being haphazard and flying by the seat of your pants is marketing sabotage”

You can add more detail to your marketing plan as you develop it year after year, but in its simplest form, a marketing plan answers the question: Who does what by when?

Dwight Eisenhower said, “Plans are useless, but planning is indispensable.” The discipline of planning brings consistency, structure, and efficiency to your marketing efforts.

Begin assembling a simple marketing plan today by corralling the details for the advertising/marketing that you would like to do between now and the end of the year. The last step in your new plan should be to plan your marketing for the following year. Schedule time for that in your calendar right now.

Sabotage #2. Failure to schedule enough time.

Have you ever said this? “I’m sorry. I don’t have time for that this week. I’m just maxed out.” Have you noticed that the next week is rarely any different?

Nothing gets done without time. Marketing takes time. Back to the previous point, planning your marketing for the rest of the year takes an initial investment of time, though it will save you time later. But even after you have a marketing plan in place, you need time to implement the steps in the plan. Otherwise, it will get pushed aside by more urgent items.

Remember that what is urgent is not always important. Marketing is rarely urgent but is always important. Set aside a day or half a day each month to execute items in your marketing plan. Here is a checklist to get you started:

• Review progress on current marketing projects.
• Identify next steps. Schedule time to do those steps or delegate them to someone else.
• Create and/or review testing and measuring reports so you know how well your marketing investment is paying off.
• Think of ways to improve your marketing. Read books and articles to glean ideas.
Evaluate yourself to see if you are reserving for yourself tasks or responsibilities that should be delegated to someone else. In the Bible, Moses was spending too much time helping solve people’s problems. It wasn’t until his father-in-law Jethro advised him to delegate that responsibility that he finally decided to get others involved to help (see Exodus 18:13-26).

You might say, “I don’t have employees who know how to do what needs to be done.” Hiring outside help—a marketing agency or freelance designer or copywriter—is a form of delegation. It not only buys the results you need, but it buys you time.

Sabotage #3. Indulging in procrastination.

We tend to see procrastination as a solution to problems (albeit a temporary solution). However, procrastination often makes the problem even more difficult once we are forced to confront it.

When you are tempted to procrastinate on a marketing project, try to identify the reason you are avoiding the project. It may be a lack of time (addressed above) or it may be a feeling of uncertainty or burden.

Marketing can feel complex, and you may feel buried under a barrage of advice and options. Or perhaps you know where you want to go, but you aren’t sure how to get there.

“Procrastination often makes the problem even more difficult once we are forced to confront it.”

When you realize you are procrastinating because you don’t know how to proceed, try reaching out for some help. This could be an “expert” or a peer-like fellow business owner or an employee who has experience you can tap into.
Don’t be too proud to ask for help.

Sometimes we procrastinate because the job feels too big. We don’t know where to start, so we don’t start at all. Try breaking the job into small, specific tasks. For example, you can break down the big job of creating a marketing plan into a few easy starter steps:
1. List all of your advertising avenues.
2. Contact each one for deadlines/prices for the coming year.
3. Consider whether you will add or remove any avenues based on your goals, events, new products, budget, etc.
Once you get started, your momentum will help carry you the entire way through the project.

Sabotage #4. Failure to connect with the right audience.

You’d laugh if a cat food producer was trying to market to cats. It’s not the cats who make purchasing decisions about their food, but their owners. So cat food producers need to connect with cat owners, not the cats themselves (though, of course, it helps if the cats like the food).

In spite of the humor, not connecting with the right audience is a common way marketers sabotage their own marketing. Like a pro fisherman tailors his tactics and bait to the species he is trying to catch, a marketer should tailor his message and tactics to the audience he is trying to attract.

Instead of trying to sell to everyone, identify your ideal customer. Who is my product designed to serve? What factors are most important to them in relation to this product? What is their mindset or worldview? How old are they? Where do they spend time? What do they read? Whom do they trust? What are their income and education? How do they make purchasing decisions?

Targeting the right audience means that your prospects are warmer instead of cooler. Your marketing is more efficient because you aren’t wasting your time and dollars on people who will never buy from you anyway (or would be a poor fit if they did buy).

Sabotage #5: Distracted by shiny new objects.

With today’s economy and technology, there are endless places to spend marketing money. You probably receive an endless stream of offers: “Advertise here!” “Try this offer!” “We’ll 10x Your Investment!” And don’t forget about online marketing: social media, email marketing, YouTube videos, blogging, and the list goes on.

If you are constantly chasing new projects, new strategies, and new opportunities without any overarching structure or goals, you may have what is sometimes called “Shiny Object Syndrome.”

Entreuprenur.com calls shiny object syndrome a disease of distraction: “It’s called shiny object syndrome because it’s the entrepreneurial equivalent of a small child chasing after shiny objects. Once they get there and see what the object is, they immediately lose interest and start chasing the next thing . . . business objectives, marketing strategies, clients or even other business ventures.”

“Marketing success happens when you develop a plan and a process and consistently implement it over time.”

I’m not arguing against trying new things, but we need to consider new opportunities thoughtfully. Where does this fit in with what we are already doing? Does this help us or hurt us in relation to our long-term goals?

If you believe that a new opportunity has potential, try a pilot project first. Invest a small amount of money and gauge the results. If it seems to be working, adopt it into your marketing plan and increase your investment.

This evidence-based approach is much wiser than trying a lot of different things willy-nilly because “everyone else is doing it.” Utilize methods that are relevant to your unique company and situation.

Conclusion

The first step to fixing a problem is to identify it. Hopefully, this article has helped you identify a way in which you might be sabotaging your own marketing efforts. If you know what’s wrong, now you can work on improving it.

Marketing success is not like suddenly winning the lottery. It happens when you develop a plan and a process and consistently implement it over time. That’s how to sell the better mousetrap that you built.

About the Author: Marvin Martin is head of sales and marketing at Rosewood. The Rosewood team guides business owners through marketing challenges into sustainable growth. https://www.rosewood.us.com/

 

EOS Workshop Report for Entrepreneurs

Preface: “Vision without traction is merely hallucination.” “Most people are sitting on their own diamond mines. The surest ways to lose your diamond mine are to get bored, become overambitious, or start thinking that the grass is greener on the other side. – Gino Wickman

EOS Workshop Report for Entrepreneurs

Credit: Donald J. Sauder, CPA | CVA

Friday, April 29th, the firm sponsored an EOS Workshop at Shady Maple Smorgasbord with local EOS Traction Implementors Brian White and Rodney Nolt. The Entrepreneurial Operating System (EOS) is a set of simple concepts and practical tools used by more than 130,000 companies worldwide to clarify, simplify, and achieve their Vision. Look at your business in a whole new way – through the lens of the Six Key Components.

Brian began the EOS workshop by asking the attendees to take a moment to visualize their businesses from an objective perspective. The heart of a company is its team, and the healthy heart of a healthy business is a healthy team. Unfortunately, too many entrepreneurial companies have a mind of their own, but for the select few, but growing number, who implement EOS Traction, often obtain more profitability, gain more significant market share, and have increased work-life balance. Going from good to great in entrepreneurism is as simple as implementing EOS.

EOS is built around six elements. 1) Vision. You know where you’re going, and everybody else on the team does as well. 2) People. Great people on the team. This definition is different for each business. For instance, an auto repair shop hires different talent than a delivery service. 3) Data. Quantifiable facts and figures are better than opinions.4) Issues. All businesses have issues. The Best know how to solve them successfully. (or get an EOS implementor to help) 5) Processes. Processes are the key to freedom and bring practical, consistent profitability. 6) Traction. The Traction element is to integrate and implement the previous five ingredients in a system.

Vision begins with Core Values. You need to define and articulate what your business lives and breathes daily—your business purpose. The purpose is what you do that feels good and is what you’re great at. The more you work towards your goal and Core Focus, the easier work (and life) will be for you. Set targets. Where will you be in ten years or three years, perhaps? Vision also incorporates a marketing strategy that culminates in More Better Customers. Vision is achieved when all your people know where you are going.

The Vision includes a 1 Year Plan with measurables. Rocks are an EOS term similar to goals that help you achieve your plans. IDS is when you identify, discuss, and solve issues. Again, all businesses have issues. The best get past discussion to ideal solutions. It’s okay to have problems. The ultimate companies give their team the tools to solve them.

The People Analyzer includes a graph where you rate each team member based on their adherence to core values and GWC. Get it; Want it; Capacity to do it. The most important feature of any business is its culture. Does your team adhere to the core values? Do they “get” what they are supposed to do, want to do it, and can excel at the role.

Data is when you integrate scorecards and measurables in decision-making instead of varying opinions. Data measures the vital signs in your business’s health and successfully guides the team’s health.

Processes are the recipes that guide you; if you’re going to follow recipes, you need to know how to cook—simply giving recipes or processes is futile if you don’t train your team your team how to “cook.” Processes succeed when you have coached your team on the ideal way to follow the process. As everyone likes a great recipe implemented successfully, similar is implementing (and training) on processes.

Traction is obtained when you have a developed a Vision following the ESO Vision Traction Organizer, have the right people in the right seats, with scorecards and measures to track performance trends from Data, Solve all issues successfully, and develop processes that successful host a great team, culminating in implementation success.

All entrepreneurs need A) a coach, B) a Peer Group C) System (EOS).

Among the concluding questions from attendees was if EOS can be implemented for successful family relationships. The word is that, yes, some families do implement EOS for their homes. You can contact Brian White or Rodney Nolt for additional details on EOS.

brian.white@eosworldwide.com

rodney.nolt@eosworldwide.com

https://www.linkedin.com/in/rodneynolt/

 

2022 Tax Planning: Independent Contractor vs. Employee

Preface: “There is no such thing as a self-made man. You will reach your goals only with the help of others.” – George Shinn

2022 Tax Planning: Independent Contractor vs. Employee

Today more and more businesses are making increasing use of outside workers to cut costs, including payroll tax costs. Unfortunately, this trend has caught the attention of the IRS. What the IRS is looking for are workers who are treated as independent contractors but who actually are employees.

When the IRS is successful in reclassifying workers, there is the potential of a substantial tax bill, consisting of, just for starters, the employer’s back social security taxes and FUTA taxes, plus possible penalties and interest.

The amounts involved are significant. For 2022, in addition to income tax withholding, the employer is required to withhold 6.2 percent from taxable wages up to a wage base of $147,000 for the Old Age, Survivors and Disability and Insurance (OASDI) portion of the Federal Insurance Contributions Act (FICA). The Hospital Insurance (HI, or Medicare) portion of the tax has no wage cap.

Despite the high stakes, classifying a worker as either an independent contractor or an employee is not straightforward. The determination depends on a number of factors and can be quite complex. Control of how and when the worker gets the job done may or may not be the most important factor.

Some workers are employees no matter how little or how much they are supervised. Others are independent contractors no matter how tightly a business controls them. For many years, the IRS applied a 20-factor control test as an analytical tool. The IRS has attempted to simplify this test by examining evidence of the degree of control and independence based on three categories:

(1) behavioral control,

(2) financial control, and

(3) the relationship of the parties.

There is some good news in all this intricacy. First, taxes due may be reduced if the misclassification is unintentional. Second, in some cases, if you have always treated workers as independent contractors the IRS may let you go on doing so. You cannot take advantage of this safe harbor unless there was a reasonable basis for not classifying the individual as an employee in the first place and unless you have filed all returns required for nonemployees, such as Form 1099 information returns.

Third, if you are unable to meet all the requirements but have filed returns, the IRS may let you settle for a fraction of the cost. Of course, there are times when the IRS is incorrect in its demands for reclassification and litigation, rather than quick settlement, may be the better course of action.

Please do not hesitate to call us. We can analyze existing payment arrangements, help you with future plans and advise you what, if any, action is necessary. We may even find workers are actually independent contractors who have been misclassified as employees. One last word: Congress is aware that reform is necessary. We will let you know promptly of any action from the Administration.

GUIDE TO MEDICARE ELIGIBILITY, COVERAGE AND PLANS

GUIDE TO MEDICARE ELIGIBILITY, COVERAGE AND PLANS

Learn about your options for Medicare, including how much it costs, when to enroll, and how to find Medicare plans near you.

What is Medicare?

Medicare is available to U.S citizens or permanent residents aged 65 or older, those under age 65 with a qualified disability receiving SSDI benefits for at least 24 months, and people diagnosed with ALS or ESRD. As a health insurance plan provided by the federal government, it plays an important role in some coverage of medical costs.

Medicare is divided into different plans to help offer more choices in cost and coverage. Learn more about Medicare plans available to you.

Learn more here: GUIDE TO MEDICARE ELIGIBILITY, COVERAGE AND PLANS

Wishing You a Blessed Easter Holiday

Jesus said to them, “Bring some of the fish you have just caught.” So Simon Peter climbed back into the boat and dragged the net ashore. It was full of large fish, but even with so many the net was not torn. Jesus said to them, “Come and have breakfast.” None of the disciples dared ask him, “Who are you?” They knew it was the Lord. Jesus came, took the bread and gave it to them, and did the same with the fish. This was now the third time Jesus appeared to his disciples after he was raised from the dead. John 21: 10-14

This is the disciple who testifies to these things and who wrote them down. We know that his testimony is true. Jesus did many other things as well. If every one of them were written down, I suppose that even the whole world would not have room for the books that would be written. John 21: 24-25

The Word Is He Is Risen.

God Bless you and yours,
Sauder & Stoltzfus, LLC

2022 Tax Planning: Hiring Family Members

Preface: “It is amazing what you can accomplish if you do not care who gets the credit.” – Harry Truman

2022 Tax Planning: Hiring Family Members

One of the advantages of someone running their own business is hiring family members, which can provide a tax deduction for compensation paid. When including family members in business enterprises, certain tax attributes and employment tax rules apply.

Both spouses carrying on a trade or business

If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. There are different filing requirements for a sole proprietor vs. a joint venture as a partnership. The spouses can elect not to treat the joint venture as a partnership by making a qualified joint venture election.

Qualified joint venture

Spouses may elect treatment as a qualified joint venture instead of a partnership. A qualified joint venture conducts a trade or business where:

• The only members are a married couple who file a joint return,

• Both spouses materially participate in the trade or business, and

• Both spouses elect not to be treated as a partnership.

Only businesses owned and operated by spouses as co-owners and not in the name of a state law entity, such as a limited partnership or limited liability company, are eligible for the qualified joint venture election.

Employment taxes. If the business has employees, either of the spouses as sole proprietors may report and pay the employment taxes. The spouse, as an employer, must have an EIN for their sole proprietorship. If the business filed or paid employment taxes for part of the year under the partnership’s EIN, the spouse may be considered the employee’s “successor employer” for purposes of figuring whether wages reached the Social Security and federal unemployment wage base limits.

The wages for the services of an individual who works for their spouse, or parent employed by a child, are subject to income tax withholding and Social Security and Medicare taxes, but not the Federal Unemployment Tax Act (FUTA).

Additionally, there are special rules for children employed by parents. Children under the age of 18 are not subject to Social Security and Medicare taxes on their wages if the business is a sole proprietorship or a partnership in which each partner(s) is a parent of the child. Additionally, the payments for wages to a child under age 21 are not subject to FUTA.

2022 Tax Planning: Charitable Giving

Preface: “If you want happiness for an hour, take a nap. If you want happiness for a day, go fishing. If you want happiness for a year, inherit a fortune. If you want happiness for a lifetime, help somebody” – Chinese Proverb

2022 Tax Planning: Charitable Giving

You probably appreciate that you can get an income tax deduction for a gift to a charity if you itemize your deductions. But there is a lot more to charitable giving. For example, you may be able give appreciated property to a charity without being taxed on the appreciation. Or charitable giving may be part of your overall estate planning. These benefits can be achieved, though, only if you meet various requirements including substantiation requirements, percentage limitations and other restrictions. We would like to take the opportunity to introduce you to some of these requirements and tax saving techniques.

First, let’s look at the basics: Your charitable contributions can help minimize your tax bill only if you itemize your deductions. Once you do, the amount of your savings varies depending on your tax bracket and will be greater for contributions that are also deductible for state and local income tax purposes.

Itemizers

Under the 2017 Tax Cuts and Jobs Act, the percentage limitation on the charitable deduction contribution base is increased from 50 percent to 60 percent of an individual’s adjusted gross income for cash donations to public charities in 2018 through 2025. There is an even greater benefit, because in addition, the phase-out of allowable itemized deductions is repealed for tax years 2018 through 2025.

Contributions to certain private foundations, qualifying organizations and  approved societies are limited to 30 percent of adjusted gross income. A special limitation also applies to certain gifts of long-term capital gain property.

Taxpayers over 70 ½ years of age are allowed an exclusion from gross income for distributions from their IRA made directly to a charitable organization of up to $100,000 ($100,000 for each spouse on a joint return). A qualified charitable distribution counts toward satisfying a taxpayer’s required minimum distributions from a traditional IRA.

Contributions must be paid in cash or other property before the close of your tax year to be deductible, whether you use the cash or accrual method. Your donations must be substantiated. Generally, a bank record or written communication from the charity indicating its name, the date of the contribution and the amount of the contribution is adequate. If these records are not kept for each donation made, no deduction is allowed. Remember, these rules apply no matter how small the donation.

However, there are stricter requirements for donations of $250 or more and for donations of cars, trucks, boats, and aircraft. Additionally, appraisals are required for large gifts of property other than cash. Finally, donations of clothing and household gifts must be in good used condition or better to be deductible.

There are other special charitable giving techniques beyond the usual gifts of cash. These include, among others, a bargain sale to a charity, a gift of a remainder interest in your residence and a transfer to a charity in exchange for an annuity.

Please do not hesitate to contact us if you have any questions about any of the themes raised in this letter.

2022 Industry Planning: Rental Real Estate as Qualified Business Income

Preface: “Find out where the people are going, and buy the land before they get there.” — William Penn Adair, politician

2022 Industry Planning: Rental Real Estate as Qualified Business Income

If you operate a rental real estate enterprise, you may qualify to claim the business income deduction under Section 199A in one of two ways.

Qualified Business Income Deduction (QBID)

Congress enacted Section 199A to provide a deduction to non-corporate taxpayers of up to 20 percent of the taxpayer’s qualified business income from each of the taxpayer’s qualified trades or businesses, including those operated through a partnership, S corporation, or sole proprietorship. Individuals, estates and trusts can also deduct 20 percent of aggregate qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership income. The deduction is effective for tax years beginning after December 31, 2017, and before January 1, 2026.

The QBI deduction is calculated as the lesser of:

• combined qualified business income (up to 20% of qualified business income, plus 20% of REIT dividends and publicly traded partnership income); or

• 20% of the excess (if any) of taxable income over net capital gain.

In order to qualify for the deduction, the business must be a qualified trade or business which is defined as any trade or business other than a specified service trade or business (SSTB) or the trade or business of performing services as an employee.

Rentals meet the definition of a qualified trade or business in one of two ways:

• real estate rentals to a commonly owned business; or

• under a safe harbor for certain rental real estate activities.

Rentals to a commonly owned business

A rental activity is treated as a qualified trade or business if it rents or licenses tangible or intangible property to a commonly owned trade or business. A business and a rental activity are commonly owned if the same person or group of persons directly or indirectly owns at least 50 percent of each of them. Businesses can meet this common-ownership test even if they are not otherwise eligible for aggregation.

Safe Harbor for Rental Real Estate Enterprise

Under a safe harbor, a rental real estate enterprise is treated as a trade or business for purposes of Section 199A only if:

• separate books and records are maintained to reflect income and expenses for each rental real estate enterprise;

• at least 250 hours of rental services are performed per year; and

• for tax years beginning after 2019, the taxpayer maintains sufficient contemporaneous records.

Call our office if you’d like to discuss how you might arrange your rental business to meet the requirements for Section 199A and take full advantage of the deduction.

2022 Tax Planning: Mileage and Home Office Deductions

Preface: “For those who have dreamed of being of farmer at heart, working from a barndominium is the ideal lifestyle.” – Vermont enthusiast

2022 Tax Planning: Optional Standard Mileage Rates

Businesses generally can deduct the entire cost of operating a vehicle for business purposes. Alternatively, they can use the business standard mileage rate, subject to some tax rule exceptions. The deduction is calculated by multiplying the standard mileage rate by the number of business miles traveled. Self-employed individuals also may use the standard rate, as can employees whose employers do not reimburse, or only partially reimburse, them for business miles driven.

Many taxpayers use the business standard mileage rate to help simplify their tax recordkeeping. Using the business standard mileage rate takes the place of deducting almost all of the costs of your vehicle. The business standard mileage rate considers costs such as maintenance and repairs, gas and oil, depreciation, insurance, and license and registration fees.
Beginning on January 1, 2022, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:

• 58.5 cents per mile for business miles driven, up from 56 cents for 2021
• 18 cents per mile driven for medical or moving purposes, up from 16 cents for 2021
• 14 cents per mile driven in service of charitable organizations, no change from 2021

Mileage related to unreimbursed business expenses and moving expenses are limited to certain taxpayers as a result of the Tax Cuts and Jobs Act for tax years 2018 through 2025.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers may have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. If instead of using the standard mileage rate you use the actual expense method to calculate your vehicle deduction for business miles driven, you must maintain very careful records. You must keep track of the actual costs during the year to calculate your deductible vehicle expenses. One of the most important tools is a mileage logbook.

Our office can help you compare the benefits of using the business standard mileage rate or the actual expense method.

2022 Tax Planning: 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. Here are some things to help taxpayers understand the home office deduction and whether they can claim it:

The home office deduction is available to both homeowners and renters for tax purposes. There are certain expenses taxpayers can deduct for taxes. They include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent. Taxpayers must meet specific requirements to claim home expenses as a deduction. Even then, the deductible amount of these types of expenses may be limited.

The term “home” for purposes of this deduction:

A) Includes a house, apartment, condominium, mobile home, boat, barndominium, or similar property.

B)  Also includes structures on the property. These are places like an unattached garage, barndominium, studio, barn or greenhouse.

C) 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:

A) 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.

B) 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:

A) 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.

B) 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.

Contact Us

If you would like to discuss this tax planning opportunity and understand the ways in which you use your home regularly and exclusively for your business can minimize your tax bill, please call our office at your earliest convenience.