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Business Tax Credits to Lower Your Tax Bill

January 30, 2023/in Taxes /by Team

Minimizing your company’s tax burden can help maximize profits. One way of doing this is through business tax credits. Leveraging the right tax credits can save your business thousands of dollars in taxes each year.

However, there are many types of business tax credits and the IRS has strict eligibility requirements. How do you know which tax credits will save you the most money? An experienced tax professional can identify which credits you’re eligible for and even file them for you.

This guide goes over business tax credits that could save you money on taxes. You’ll also learn how to maximize their impact with the help of an experienced CPA or tax accountant.

Small Business Tax Credits vs. Deductions

Small business tax credits and deductions are valuable tools for reducing your tax bill. They are incentives the government offers to reduce the amount of taxes you owe. However, they work in different ways.

Tax Credits

Unlike deductions, tax credits directly reduce the amount of taxes you owe instead of lowering your taxable income. If you’re eligible, you can lower the amount of taxes you owe dollar-for-dollar.

For example, let’s say you owe $1,500, but you have a credit worth $500. You could deduct the credit amount ($500) from what you owe ($1,500). Then, your total amount would be $1,000.

Tax credits can range from investing in research and development to hiring new employees.

For example, the Work Opportunity Tax Credit rewards small businesses for hiring individuals that meet certain criteria. Knowing which tax credits are available to you and how to use them can significantly impact your business finances.

Tax Deductions

Deductions can move you to a lower tax bracket, so the IRS taxes you at a lower rate. Examples of tax deductions include business expenses like office supplies, equipment, and travel costs.

Deductions can also be tricky as there are different rules for claiming them, and not all expenses are tax deductible. If you’re unsure which small business tax deductions you may qualify for, consult a tax professional.

11 Small Business Tax Credits

The IRS has specific eligibility requirements for each tax credit. To maximize your tax savings, here are 11 of the top tax credits for businesses and how to use them.

1. Work Opportunity Credit (Form 5884)

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and employ individuals from certain targeted groups. The IRS bases this credit on the employee category, how much you’ve paid them during the first year of employment, and how many hours they’ve worked.

To qualify, you must hire an eligible worker in one of these categories:

Unemployed veterans
Ex-felons
Temporary Assistance for Needy Families (TANF) recipients
Supplemental Nutrition Assistance Program (SNAP) recipients
Designated community residents
Vocational rehabilitation referrals
Long-term family assistance recipients
Qualified summer youth employees
Qualified long-term unemployed individuals

You can claim the Work Opportunity Tax Credit by completing Form 5884 and submitting it along with your tax return.

You must also provide information about newly-hired employees on Form 8850 within 28 days of the hire. You’ll submit this form to your state workforce agency for certification.

In case of an IRS audit, you should maintain records for your WOTC claims for at least the last four years. Those who meet all eligibility requirements could receive up to 40% of the first $6,000 in wages ($2,400) as a tax credit.

2. R&D Credit (Form 6765)

Businesses that invest in research and development (R&D) activities might be eligible for the R&D Tax Credit. To be eligible, your business must incur expenses for developing or improving a product, process, technique, invention, or software. Qualifying expenses may include wages, supplies, and contract research fees.

Startups that have less than $5 million in annual gross receipts could apply up to $250,000 of the credit to offset payroll taxes. Since the IRS calculates the tax credit amount based on the amount a company spends on R&D, most early-stage startups don’t qualify for the full amount.

The Inflation Reduction Act increased the maximum threshold from $250,000 to $500,000, starting with the tax year 2023.

To obtain this credit, businesses must submit Form 6765 to their federal income tax return by April 18, 2023. You must also include information about your R&D activities and expenses.

3. Alternative Fuel and Electric Vehicle Credits

Taxpayers who purchase, lease, or install alternative fuel vehicles and infrastructure are eligible for a series of federal tax credits. The credit amounts vary depending on the type of vehicle or infrastructure you install.

Biodiesel and Renewable Diesel Fuels Credit (Form 8864) – Claim a credit of up to $1.00 per gallon of biodiesel, renewable diesel, and alternative fuels you purchase.
Alternative Fuel Vehicle Refueling Property Credit (Form 8911) – If you install an alternative fuel vehicle refueling station, you can receive up to $30,000 in tax credits.
Biofuel Producer Credit (Form 6478) – This credit is available to taxpayers who produce biodiesel and renewable diesel fuels. The amount varies depending on the type of fuel you produce.
Qualified Electric Vehicle Credit (Form 8834) – If you purchase or lease a new electric vehicle, you may be eligible for up to $7,500 in credits.

You’ll need to file the appropriate form with your federal income tax return to claim these credits. Your filing date should match the deadline for your tax return. Alternative fuel and electric vehicle credits may be subject to phase-out dates and other restrictions. It’s best to consult a professional for tax compliance and filing information.

4. Employer-Provided Childcare (Form 8882)

If your business provides childcare assistance to its employees, then you may be eligible for the Employer-Provided Childcare Credit (Form 8882). The government encourages businesses to offer childcare benefits to assist working parents. The credit can offset some of those costs.

To determine eligibility, you’ll need to calculate the cost of qualified expenses for each employee. The credit equals 25% of qualifying expenses up to $150,000. You can also claim 10% of childcare resources and referral expenses.

To claim the Employer-Provided Childcare Credit, submit Form 8882 by the tax return due date. You have up to three years to file claims for this credit. Also, you should keep childcare expense records for at least four years from the filing date.

5. Small Employer Health Insurance Premiums (Form 8941)

To offset health insurance coverage expenses, you can use the Small Employer Health Insurance Premiums Credit (Form 8941). You must have fewer than 25 full-time employees and pay at least half the single coverage cost for each employee.

You can calculate the amount of the credit as a percentage (up to 50%) of your health insurance premiums. For non-profits, it is up to 35%. To claim the credit, you must submit Form 8941 with your federal income tax return by April 18, 2023. You will need to provide information about your health coverage and expenses.

6. Paid Family and Medical Leave Credit (Form 8994)

Your business may be eligible for the Paid Family and Medical Leave Credit (Form 8994) if it provides paid leave to employees. The credit encourages businesses to offer paid leave by offsetting the costs.

To qualify, a business must have a written policy that provides at least four weeks of annual paid family and medical leave to full-time employees. Part-time employees should receive up to two weeks of paid leave.

You can calculate the credit as a percentage (ranging from 12.5% to 25%) of the wages you pay employees while on leave. You must provide records of wages along with Form 8994 by April 18. 2023.

7. Retirement Plan Startup Costs (Form 8881)

Businesses that have a qualified retirement plan are eligible for the federal Retirement Plan Startup Costs tax credit (Form 8881). It incentivizes businesses to offer retirement plans—401(k), SEP, SIMPLE IRA, and others—to employees.

The maximum credit is 50% of qualifying startup costs with a $500 limit. If your business qualifies you could reduce your tax bill by up to $500. To qualify, a business must have 100 or fewer employees that have received at least $5,000 in compensation from you in the previous year.

To claim the credit, submit Form 8881. The deadline to submit will vary depending on your tax filing status.

8. Disabled Access Credit (Form 8826)

If you’ve spent money to make your business locations accessible to individuals with disabilities, you may qualify for the federal Disabled Access Credit (Form 8826). Qualifying costs include modifying entrances, restrooms, and parking.

To apply for the credit, your business must have earned $1 million or less and have fewer than 30 employees. The maximum credit will be 50% of the expenses, with a maximum of $5,000 per year. To receive the credit, you’ll need to submit Form 8826.

Note, you may also be eligible for a business expense deduction of up to $15,000 too. It’s called the Architectural Barrier Removal Tax Deduction. To be eligible, you must have spent money on making your facility ADA-accessible to the elderly or disabled.

9. Energy Efficient Home Credit (Form 8908)

The Inflation Reduction Act (IRA) brought the Energy Efficient Home Credit (Form 8908) back. If you’re a contractor that has made energy-efficient improvements to homes you sold or rental properties, you may qualify.

The maximum credit limit for the 2022 tax year is a $500 lifetime credit. As a lifetime credit, any amount you took in previous years would count toward the total $500 limit.

However, the IRA increased this to an annual credit of up to $1,200 for years after 2022. To qualify for this business tax credit, you must meet energy-efficient improvements. Those may include installing energy-efficient:

Insulation
Windows
Water heaters
Central air conditioning
Furnaces
Doors
Roofing

To claim this credit, you’ll need to keep records of qualified energy-efficient expenses and file Form 8908.

10. Low-Income Housing Credit (Form 8586)

To qualify for the Low-Income Housing Credit (Form 8586), your business must develop and operate low-income residential housing. Eligible businesses must meet specific criteria set by the IRS. These include:

Income restrictions
Rent limits
A commitment to maintain the property over a particular period

You base the credit amount on the qualified basis of the property, which is either 4% or 9% of the project’s gross construction costs.

11. General Business Credit (Form 3380)

The General Business Credit (Form 3800) tallies up all applicable business tax credits. You calculate the credit as the sum of all applicable business tax credits claimed in the current year. You can carry back unused amounts for one year or carry forward 20 years.

You’ll submit Form 3800 with your federal income tax return. Your tax return deadline will depend on your filing status. When filing, provide information about all the business tax credits you’ll claim during the current year.

Lower Your Tax Bill With a CPA

With knowledge of the tax code, including business tax credits, deductions, and more, your CPA can do more than prepare your taxes. An experienced CPA can provide valuable advice on the best ways to lower your tax bill and maximize the profitability of your business.

Tax credits are powerful tools. Xendoo has a team of in-house bookkeepers, CPAs, and tax experts. You don’t just get business tax services, you get personalized financial advice.

As tax professionals, we make it our mission to maximize your business tax savings. Schedule a free consultation and we’ll get to know your business and unique tax situation.

Filing Your Schedule C: A Simple Guide

January 31, 2022/in Taxes /by Team

Are you a small business owner? If so, you may be looking for advice on filing your Schedule C. The IRS Schedule C is used by sole proprietors and single-owner LLCs to report your small business taxes and is part of your personal tax return.

We understand that business taxes can seem confusing, if not overwhelming. That’s why we’re here to help you with filing your Schedule C so you can stay in compliance and get back to business.

Is it Worth Filing a Schedule C?

As with other details surrounding your small business taxes, it’s unfortunately not a question of whether it’s “worth” filing your Schedule C. Schedule C is required for the following business types:

Single-owner LLC
Sole proprietor

The only other business type that might need Schedule C is when two married people organize a special type of partnership known as a Qualified Joint Venture. In this instance, the couple will use two Schedule C forms when filing small business taxes.

Using a Schedule C doesn’t exempt you from paying your quarterly estimated business taxes, of course. You’ll still need to make these regular estimated payments to avoid any penalties and fees when it comes time to file your return.

Your Schedule C will help determine your actual tax debt for the year, and you can then see how it compares with your quarterly estimates.

Can I File a Schedule C By Itself?

By itself, a Schedule C will not count as an acceptable tax filing form. Instead, a Schedule C must be submitted along with your personal income taxes using Form 1040. Your Schedule C can be submitted electronically with your personal income tax or stapled to your paper form.

To understand this better, consider the way that small business taxes are typically handled. Sole proprietorships and single-owner LLCs are legally considered pass-through entities.

This designation means that your business is not considered to be a taxable entity by itself. Instead, the profits from your business go directly to you, the owner. This passthrough means that you’ll report business income when you file your personal tax returns each year.

Your Schedule C, therefore, contains detailed information about your company’s financial performance for the relevant tax year, including:

Income
Expenses
Cost of goods/supplies

This information will be used to calculate a net profit or loss, which will be recorded on Form 1040. Keep in mind that there is no minimum income requirement. All sole proprietors and single-owner LLCs will have to file Schedule C each tax year.

What Do I Need to File a Schedule C?

Filing your Schedule C isn’t complicated, though you’ll need some time to complete the details, as well as the information necessary to complete the forms properly. You can expect to need the following pieces of business data for your Schedule C:

Your business income statement for the tax year
Your company’s balance sheet for the tax year
Receipts for any and all business expenses
Inventory records (if applicable)
Mileage records

If you operate more than one business, you’ll need a separate Schedule C for each one. This setup isn’t terribly common, of course, but if you receive income from multiple side hustles, you’ll have to report for each using its own Schedule C.

How Do I Submit a Schedule C?

Ultimately, you’ll use Schedule C to calculate your net profit or loss for the year. Your net business profit will then be recorded on Form 1040 as personal income. Calculating these figures isn’t challenging, but it can be a bit intimidating if you’re not used to doing your own business tax preparation. We’ll walk you through each step.

Step One: Gather Information About Your Business

Start by gathering as much information as you can about your business. This step is all about data. You’ll want to have records about items such as:

Your business income for that tax year
Cost of goods sold
Any business expenses

Remember, you can calculate business expenses the same way you always would, including items such as office supplies, mileage, utilities, meals, and others.

You won’t have to show supporting documentation when filing your Schedule C, though anytime you’re dealing with the IRS, you’ll want to make sure to have receipts, business documents, and any other paperwork to authenticate your earnings and expenses for the relevant tax year.

Step Two: Calculate Your Gross Profit and Income

Now that you have your information gathered, you can start filling out your Schedule C. Under section I, you’ll report your sales and the cost of goods sold. Your expenses can be reported under section II.

But here, you’ll also calculate your gross profit from your business. To calculate your gross profit, you’ll first need to determine your net receipts. You can accomplish this through the following calculations:

Gross sales – returns and allowances = net receipts
Net receipts – the cost of goods sold = gross profit

Once you have your gross profit, you can simply add it to any other income you’ve received to calculate your total gross income.

Step Three: Deduct Your Business Expenses

Check your form, and you’ll see that deductible business expenses are listed on lines 8 through 27. These lines account for expenses such as:

Depletion
Depreciation
Section 179 expenses
Employee benefits
Insurance
Interest
Legal and professional fees
Office expenses
Meals
Rental of vehicles or equipment
Travel expenses
Office supplies and furniture
Utilities
Wages and employment costs (e.g., benefits, unemployment insurance)

The more deductions you take, the greater your profits will be. But before you start taking deductions, be aware that there may be some stipulations associated with certain categories or expenses. If you’re ever in doubt, ask a tax professional.

Step Four: Deduct Your Home Office

Many small business owners work from home. If that applies to you, you’ll have two options for reporting the expense associated with your home office.

Option A allows you to take a deduction based on the total square footage of your home.

Using Form 8829, you’ll take the total area of your home, then determine the percentage occupied by your home office. So if your home is 1,000 square feet, and your office is 100 square feet, it occupies 10% of your home. This percentage can be included on line 30 of Schedule C.

Option B is simpler, allowing you to take a standard deduction on home business space up to 300 square feet.

The IRS allows you to take a $5 deduction per square foot on this space, to a maximum of $1500. This amount will also be reported on line 30 of Schedule C, and there is no separate form to fill out.

Just remember that to take this deduction, your home office space must be devoted to the regular and exclusive use of your business; otherwise, you cannot legally qualify for this deduction.

Step Five: Provide Other Details About Your Deductions

After this, you’ll complete parts IV and V of Schedule C. These are primarily information sections. Part IV asks for information about your vehicle relating to driving frequency, mileage, etc.

Part V will allow you to provide any additional details about other expenses you may be deducting. The total will be recorded on line 27 of Schedule C.

Step Six: Calculate Your Net Profit

You’re now ready to calculate your net income. To do this, simply follow the following steps:

Enter your total expenses on Line 28
Subtract Line 28 from Line 7. This total will give you your tentative profit on Line 29
Subtract business expenses from your home (Line 30) to get net profit (Line 31)

Profit will be reported as personal income, but a business loss must be accounted for on lines 32a and 32b to determine your risk.

Step Seven: Add Schedule C to Form 1040

The net profit/loss from line 31 of Schedule C can now be recorded on Schedule 1, line 12 of Form 1040. You’ll then file Schedule C along with Form 1040 (and any other tax paperwork) when you file your personal income taxes.

Is a Schedule C the Same as a 1099?

A Schedule C is a very different form from a 1099. Form 1099 is used to indicate that a company has paid an employee as a contractor or independent employee. So if you employed these individuals during your tax year, you’ll be responsible for filling out Form 1099s and distributing them to these contractors.

However, Form 1099 may be necessary to fill out Schedule C. Any money you spent on employees would be classified as a business expense, and therefore should be included when filing your Schedule C.

Specifically, part II of your Schedule C will provide space for you to record business expenses, which would include any money you paid to contract employees in the past tax year.

Skip the Headache: Let the Experts Handle Your Schedule C

Filing your Schedule C isn’t difficult, but the easiest thing of all is to turn to professional tax services for all of your tax planning and preparation. Xendoo offers tax preparation for small business so that you can stay focused on your company and not on your tax obligations.

To learn more, simply click here to get started. Our free trial can show you how Xendoo’s innovative features can take the stress out of your tax preparation.

A phone with Venmo, Cash App, and Zelle.

Tax-Reporting Change for Venmo, Cash App, and Others

January 31, 2022/in Accounting, Bookkeeping, Taxes /by Johanna Raspolich

New Year, New Tax Requirements

Do you use apps like Zelle, Venmo, and Cash App to accept payments from customers? How are you reporting those earnings? In the past, although all business owners were required to report their earnings on their Federal Tax Returns, only those who received payments of $20,000 or more through payment apps also reported their earnings using Form 1099-K. Recently, that rule was changed and will affect a larger pool of business owners going forward.

Will this new rule apply to your business? Keep reading to find out! In this post, we will discuss the new requirement, and how Xendoo can help you stay on top of your tax compliance in this evolving landscape.

Tax Reporting for Payments of $600 or More

Previously, the reporting threshold was much higher – $20,000 in gross payments, with at least 200 transactions in the current year. The update set a new minimum requirement for filing a Form 1099-K by third party payment apps: business owners who collect payments of $600 or more will now receive Form 1099-K from the payment apps they use, in order to disclose their mobile app earnings to the IRS.

The new requirement went into effect on January 1, 2022, and will apply to 2022 taxes, which will be filed in 2023.

Note: This requirement only applies to business-related transactions, not personal transactions. For example, reimbursements from roommates for their share of the rent and monetary gifts from loved ones would not qualify. The selling of personal items at a loss is also excluded, such as a bed purchased for $300 and sold for $100.

The best accounting practice is to keep personal and business finances under separate accounts, in order to save time and avoid confusion while filing taxes. Consider creating distinct profiles for your business under the payment apps you use.

Do Payment App Users Have to Pay More Taxes?

Now that the reporting amount requirement has been lowered to $600, it is likely that you (and many other business owners) will receive Form 1099-K from the payment apps you use, to file with your Federal Tax Return in the 2023 tax season.

The good news is that this does not mean that business owners now owe additional taxes. The use of Form 1099-K is only a reporting method and an update to the threshold in existing tax laws.

Adding yet another item to the tax season to-do list may feel overwhelming, but you do not have to handle it all on your own. Below, we will discuss how online bookkeeping and accounting services can help your business remain tax compliant!

Tax Compliance Done for You

Business owners deserve expert support as tax compliance rules change. In order to remain tax-ready throughout the year and maximize your return, consider partnering with an online accountant at Xendoo! They will provide:

Online Bookkeeping: Tax savings begin with consistent bookkeeping, which provides the financial visibility needed to make informed, data-driven decisions, now and during tax season.
Small Business Tax Services: Your online CPA will keep track of the changing small business tax regulations on your behalf, so you can focus on what you love – growing your business! They are available when you need them, all year long.
Catch Up Bookkeeping: Are you behind on your bookkeeping? You are not alone! 25% of business owners are behind on their books. Whether you are behind a few months or years, Xendoo can bring your bookkeeping up-to-date, complete with a year-end financial package to prepare your business for tax season.

Our services are designed to save small business owners time, stress, and money, so they can enjoy financial peace of mind, even when tax requirements change. Are we a fit for your business? Let’s chat! Click here to schedule your free consultation.

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4 Ways Small Business Owners Can Stay Tax Compliant

January 6, 2022/in Accounting, Bookkeeping, Taxes /by Johanna Raspolich

The Details Matter

A crucial component of being a small business owner is meeting certain tax requirements in order to remain compliant in the eyes of the IRS. It can feel overwhelming to keep track of every rule and deadline, especially while juggling countless other business responsibilities day in and day out.

That is why the Xendoo team has created this guide to help business owners stay on top of their tax requirements, remain compliant throughout the year, and effortlessly maximize their return!

Keep Your Bookkeeping Up-to-Date

Up-to-date and accurate bookkeeping saves business owners time, stress, and money during tax season.

By keeping your books up-to-date, you can be confident that you are reporting your income and expenses correctly, paying the proper amount in taxes, and paying your estimated taxes in a timely manner, which produces a stress-free tax season. Instead of playing phone tag with your finance professional over missing documents, you can work with an online accountant who will determine the tax deductions you qualify for and file your taxes on your behalf, so you can get back to what you love – growing your business!

Pay Self-Employment Tax

In typical payroll situations, self-employment taxes are split between the employee and employer, each paying 7.65%. Self-employed individuals pay both halves: 12.4% for Social Security and 2.9% for Medicare – 15.3% all together, which applies to business profit. For example, if your business is an LLC, and made $100,000 in profit, you will pay $15,300 in self-employment taxes. Self-employment income is reported on the Schedule C that accompanies Form 1040. As a rule of thumb, self-employment taxes are required if you made $400 or more in net earnings from self-employment.

While self-employment taxes cannot be waived, there is a way to decrease them.

Self-employment tax payments can be decreased by electing to be taxed as an S-Corporation. S-Corporation owners pay themselves in two different ways: salary and distributions. While the salary is subject to self-employment taxes, the distributions are exempt, which allows S-Corps to avoid double taxation.

It is always best to speak to a small business tax accountant. They will get to know your business, and determine if S-Corp Election is right for you.

Pay Quarterly Estimated Taxes

Because self-employed individuals do not have taxes withheld from their paychecks like W-2 employees, they pay quarterly estimated taxes in order to cover Social Security, Medicare, and income tax. Those that expect to owe $1,000 or more in income tax are required to make quarterly estimated tax payments, and will file using Form 1040-ES.

To ensure that your estimated tax payments are made on time, mark your calendar with the upcoming deadlines:

January 18, 2022 (the final installment for 2021)
April 18, 2022
June 15, 2022
September 15, 2022
December 15, 2022

Now comes the fun part: calculation! By dividing last year’s tax liability by 4, you can determine what you will owe each quarter for this year.

For example, if you paid $10,000 in taxes last year, you will owe $2,500 in quarterly estimated taxes this year ($10,000/4 quarters = $2,500).

If your income fluctuates, consider calculating your payments based on your quarterly earnings instead. You can also take advantage of Xendoo’s small business tax services. Our expert online CPAs are available all year long, so you can make informed decisions each quarter, and maximize your return when tax season arrives!

To learn more about calculating your quarterly estimated tax payments, click here.

Separate Personal and Business Bank Accounts

One of the most straightforward ways to remain tax compliant is to separate personal and business bank accounts.

Using a business bank account and credit card ensures financial accuracy, which is crucial to tax compliance. Instead of sorting through personal and business expenses while bookkeeping, you will be certain you are only recording relevant expenses, and your books will reflect your true financial position.

If you utilize personal assets for your business, like a home office or vehicle, keep detailed records of when and how they are used in order to support the deductions you claim. When tax season arrives, you will have the financial clarity needed to accurately report your financials to the IRS.

Expert Tax Support, All Year Long

You do not have to lose sleep over tax compliance. Xendoo is here to help! We provide online bookkeeping services, as well as catch up bookkeeping, so you can focus on growing your business. Enjoy peace of mind knowing your financials are always up-to-date, and that your business is always tax-ready.

Let’s chat! We would love to get to know your business. Click here to schedule your free consultation.

A business owner working with a laptop and calculator to determine his tax savings

Tax Savings for Small Business Owners: Bonus Depreciation and Section 179

November 2, 2021/in Small Business Tips, Taxes /by Johanna Raspolich

When making a major purchase for your business, you are expected to spread the tax deduction out over the lifespan of that purchase, which provides small tax savings over the years. But, why wait? Business owners can take advantage of Bonus Depreciation and Section 179 to invest in their businesses, resulting in an enormous tax break!

In this blog post, we will explain how the deductions work, and how you can use them to maximize your tax savings.

How Do the Deductions Work?

Section 179 allows you to deduct the full purchase price from a qualifying new or used business asset, while Bonus Depreciation allows you to deduct a percentage. Currently, Bonus Depreciation is being offered at 100%, so both options will allow you to write off the entire cost of your purchase in the same year.

There are certain criteria that the asset must meet to qualify for the deductions:

Tangible Items. This includes, but is not limited to, physical items such as office furniture, equipment, computer software, and business vehicles exceeding 6,000 pounds.
Interior Improvements. While land and buildings do not qualify for Section 179, interior improvements do. Examples include, but are not limited to, fire alarms, security systems, roofing, and HVAC. To qualify for Bonus Depreciation, qualified improvements must have been completed after the building became operational. Building enlargements, elevators, escalators, and any internal structural framework changes are ineligible.
Used for Business. Assets must be used for business purposes more than 50% of the time to qualify for Section 179 and Bonus Depreciation.

There are many major purchases that business owners can make, and claim these deductions. If you have made or plan to make a major purchase for your business and are unsure if it qualifies, speak with an online accountant at Xendoo to learn more.

Are There Limits to the Deductions?

For 2021, Section 179 is limited to a maximum deduction of $1,050,000, and the total equipment purchased by a business cannot exceed $2,620,000. Bonus Depreciation is currently being offered at 100%, but is scheduled to decrease to:

80% after December 31, 2022 and before January 1, 2024.
60% after December 31, 2023 and before January 1, 2025.
40% after December 31, 2024 and before January 1, 2026.
20% after December 31, 2025 and before January 1, 2027.

If you are considering utilizing Bonus Depreciation, now is the time to do so, as the percentage you can claim will start to decrease soon.

Section 179 allows you to split the deduction over time. For example, you could write off half of the purchase up front and spread out the rest over the next few years, allowing for greater flexibility on your deduction. It should also be noted that your business must have a taxable profit to claim Section 179, as the deduction is limited to your business’s net income.

For example, if you have a net income of $60,000, and you purchased $70,000 worth of equipment, the deduction will be limited to $60,000. You can carry the remaining $10,000 deduction into the next year, as long as your income allows for it.

Bonus Depreciation requires that you deduct the entire cost within the year. However, there are no income restrictions on this deduction, unlike Section 179. Even if you make a purchase that exceeds your net income, there will not be a limit to the deduction, as it covers 100% of the purchase.

Business owners can claim both Section 179 and Bonus Depreciation, but Section 179 must be taken first. They must also be applied to different purchases. For example, you could claim Section 179 for a business vehicle, and Bonus Depreciation for office furniture. Consult with one of Xendoo’s online Tax CPAs to discuss all your options.

Maximized Taxes. Minimize Stress.

Bonus Depreciation and Section 179 can provide substantial tax breaks for your business. The Xendoo team is here to help you maximize your tax savings with these incredible opportunities!

Let Xendoo handle the hassles while you put more money in your pocket and take your time back. Our expert bookkeepers, accountants, and CPAs can help you navigate your financials throughout the year!

Schedule a call with one of our online accountants to get started.

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3 Keys to Working Smarter, Not Harder in Business

October 8, 2021/in Accounting, Bookkeeping, eCommerce /by Team

Work Smarter, Not Harder

At SmartScout, we built our business around the idea of working “smarter”. Easy enough to say. What steps can small business owners take to work smarter? Glad you asked.

The three keys to working smarter, not harder, in business are education, technology, and delegation. In this blog post, we will show you how you can use these keys to expand your knowledge, streamline your workflow, and delegate work to your team to grow their skills.

1. Never Stop Learning

What counts as educating yourself? It is both more and less than you might think. Reading this blog, for example, counts toward educating yourself. You either came to this blog because you were already following it, or you were searching for the answer to a specific question. It is crucial to stay informed on what is happening in your business niche so you can keep up with the competition and continue to grow your knowledge. However, this tends to keep you on surface level subjects, and when you find a topic that really interests you, you need to dive in deeper.

Watch Youtube videos, listen to podcasts, and take training courses. Even better is to learn from experts who actually walk the walk. Follow industry leaders on social media, and ask them questions when you can. Attend networking events and trade shows to connect with industry leaders and fellow life-long learners.

Most important of all, never stop learning. Self-improvement is a never-ending game, so find the way it works best for you, and keep at it!

2. Automate with Technology

Automate tedious work with technology to save time and minimize human error. One of the beauties of the modern world is that technology can steamline almost any task. There are solutions for every business function, including product research!

For example, eCommerce business owners can save time by utilizing an online research tool such as SmartScout. The SmartScout database enables you to find thousands of lucrative products for arbitrage, calculate and reduce FBA fees, and increase product visibility with strategic advertising – just to name a few! Work that once took hours now takes moments with the SmartScout database.

The goal is to balance time saved with money spent. If the task is outside of your area of expertise or simply takes up too much of your time, utilize tools that will save you time and sanity.

3. Let Go and Delegate

Just like you need to give thoughtless tasks to technology, give thoughtful tasks to other people, so they can do their highest level thinking. This gets hard when it comes to things you are passionate about. Ask yourself, what are you holding onto that you need to let go of?

This is the reason why people who are promoted for their skills in a field often struggle as managers. They do not communicate with their team, nor do they trust them to follow through on assignments. To be a good delegator, you must become a good manager. Communicate clearly with your team and trust them with the tasks you give them, so they can help grow the business and their skillset.

What about the tasks that you do not like to do? If you lack expertise in a particular area and do not have a team member to take up the responsibility, partner with a professional.

Many business owners spend countless hours on bookkeeping, which takes time away from running their businesses and enjoying their lives. By partnering with an online bookkeeper, they can effortlessly keep their financials up to date and stay tax-compliant, all with the support of an expert. This gives them the freedom to focus on what they love – growing their business.

Need to improve your managerial or tech skills? Head back to the top of the list, and the cycle continues!

Always Getting Better

Successful business owners are always looking for ways to improve. The key is to work smarter, not harder! Continue to learn, automate mundane tasks with cutting-edge technology, and delegate work to save time and help your team grow in skill and knowledge. These simple practices can help you become the best business owner you can be!

What does your Amazon business need to succeed? With SmartScout, you have access to more product, brand, and seller data than anything out there. If you are ready to turbocharge your business, we are here to help!

An Amazon sellersets up her accounting reports on her computer

A Guide to Tax Savings for Consultants

September 2, 2021/in Taxes, Uncategorized /by Team

If you’re living the independent consultant life, you probably think it’s pretty sweet that you don’t have a boss over you, telling you what to do. But aside from your mini-bosses (AKA clients), you still have one more entity to which you report: The IRS.

The IRS watches consultants closely, and every tax dollar that is owed has to be accounted for. The good news is that the money you spend on your business can often become “yours” again through tax savings.

Here are some tax-saving tips for consulting firms to minimize what they owe to the IRS at the end of the fiscal year.

Internet, Phone, & Business Utilities

Whether you work from a home office or rent a separate building that you commute to, the cash you spend on the necessities of doing business can often be deducted.

Keep track of your basic operational overhead, including internet costs, your cell phone minutes, electricity bills, and any other utility costs that come about in the normal course of business.

Don’t forget about the software you use. If you have any subscriptions for programs like Microsoft Office or Adobe Suite, they might just be deductible expenses. Although it can be a pain to subscribe for software instead of purchasing it outright, as far as your tax returns are concerned, they’re the gift that keeps on giving!

Office

Perhaps you have a home office. Congrats! Working from home means your commute is simply a few steps that you can take in your slippers and robe. But is it a source of tax savings?

The IRS lets you deduct the expenses related to this space as long as it is solely used for your consulting duties. For your home office, there are two ways to write off costs for your tax return:

Actual Expense Method

The total expenses for your office include “direct expenses” for things like supplies and repairs, as well as “indirect expenses,” which might account for portions of your utilities, mortgage, and insurance.

The Simplified Option

Take the standard rate (which is currently set at five dollars) and multiply it by the square footage of your office (as long as it’s less than 300 square feet). If you take this option, you can still write off your office supplies, too!

If you commute to a separate fixed location office, know that you can’t deduct your mileage to and from that office. You can, however, deduct any business insurance you pay, as well as rent or any utility bills.

Entertainment and Meals

Be prepared to defend your entertainment, travel, and meal expenses to the IRS! They’ll want to ensure that these costs were truly necessary for doing business, like meeting a client at a restaurant to talk shop or taking them to a show.

Unfortunately, you can’t deduct a meal that came with entertainment, thanks to the Tax Cuts and Jobs Act, unless the meal was a separate expense from the entertainment portion.

You can deduct 100% of your travel fees, airfare, gas, and hotels, while you can also deduct 50% of your meal costs.

Deducting anything that could (to an outside observer) look like pure fun, rather than work is where you’re going to need impeccable accounting and bookkeeping. It would be wise to keep a journal of your travel activities should the IRS have any questions for you.

Educational Materials and Courses

Whether you’re starting your consulting career right out of school or you’re a lifelong learner, your thirst for knowledge can come with some serious tax savings.

Education tax credits and the Lifetime Learning Credit can earn you tax breaks if you’re taking courses at a recognized institution of higher learning. If you’re paid for any seminars, lectures, conferences, or even any certifications, write those costs off, too!

Not only can education lower your taxes, but anything that could be considered to be education is most likely deductible, too!

Your magazine subscriptions and books (related to your industry), as well as research services, allow you to stay on top of the latest developments in your field.

As a short aside, this is the kind of thing your clients will want to see, too. Positioning yourself as an expert that keeps abreast of trends and news for your area of expertise proves you’re worth your customers’ money and time!

Mileage

If you take the standard mileage deduction, it does reduce your upfront work when it comes to keeping track of vehicle-related expenses. However, you won’t be able to write off your gas, repairs, maintenance, or insurance.

If you want to get the biggest possible tax savings, go the extra mile and track your mileage!

Let’s say you choose to keep track of work-related car use. Remember that you can’t deduct mileage to and from your house and your permanent office location, even if you’re meeting with a client.

You can write off your mileage when you’re commuting to meet clients at other locations, as well as when you run work-related errands. Write down your odometer readings or find an app that lets you track mileage.

Office Supplies

Look around your desk. That stapler? Those pencils and pens? The paper in the printer? Post-It Notes? Stamps? Write them off! You can also deduct printing services.

Any consumable materials you use in the course of your work in your office, as long as they are being used for work, count as expenses you can deduct.

Marketing and Advertising

Building your brand will require getting your name and logo in front of as many eyes as possible. Your web hosting service, graphic design, and any ads you run, regardless of the medium, are deductible expenses.

Now, if you’re savvy and able to do some of the work yourself, like photoshopping a logo or building your website, unfortunately, you can’t deduct what you would have spent for someone else to do the work for you!

You might be able to create graphic designs worthy of tens of thousands of dollars, but unless that’s what you spent to have someone else do it, just consider it to be upfront savings, as it’s not a deduction.

Health Insurance

As an independent consultant, you will have to pay for your own health insurance, but the good news is that it is a deductible cost. All health, dental, and vision coverage you purchase for yourself and your family can be written off. However, if you’re covered under your spouse’s plan, you can’t deduct those costs.

Client Gifts

Write off expenditures of up to $25 for any client gifts. The more clients you have, the more you can give. The more you can give, the more you can write off.

However, if you choose to buy a client a solid rosewood dining table that costs as much as a new car — sorry, you’ll only be able to write off $25 of what you spent!

Keep in mind that the IRS will frown on you giving multiple $25 gifts to the same client at the same time. These don’t count as separate gifts — they’ll be considered to be one lump expenditure.

Be Your Own Boss (and Spend Less Doing It)

As you try to figure out what is the best business structure for consultants, you might feel alone as you gain your footing. Know that it’s a path that many others have walked before you. The IRS will be watching you closely, but your friends at Xendoo are watching them right back!

We help consultants every day with bookkeeping and tax preparation services. Going out on your own doesn’t mean going it all alone. Contact us today and give yourself the best start you can as you forge your path to being a successful independent consultant.