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

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.

3 Keys to Working Smarter, Not Harder in Business

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!

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A Guide to Tax Savings for Consultants

An Amazon sellersets up her accounting reports on her computer

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.