Does the IRS allow moving expenses to be a tax deduction?

If you incur costs of using a moving van for business purposes, the IRS may allow you to claim them as a tax deduction.

If you incur costs of using a moving van for business purposes, the IRS may allow you to claim them as a tax deduction.

The task of moving to a new place can be daunting. In many cases, transporting a large amount of property from one location to another comes with unnecessary stress and obstacles. However, there is a bright side to moving when it comes time to file your taxes.

Moving expenses can be claimed as a tax deduction under certain circumstances. If you are relocating yourself or your family to a new location to start a new job, business, or to continue working for your current employer in a different location, you can deduct some of the expenses you incur in moving costs for your personal possessions. These costs may include the money you spend on a moving truck, mileage driven for items you move personally, and other related expenses.

There are two basic “tests” that come into play when calculating deductible moving expenses. These include the “distance test” and the “time test.” Your new work site must be at least 50 miles away from your most recent work site. If you did not have a job or own a business prior to getting this new job, the 50-mile rule applies to the distance between your residence and your new place of employment.

The “time test” is a bit more restrictive. If you’re an employee, you must work on a full-time basis in your new job for a minimum of 39 weeks in your first year of employment. This period of employment should begin as soon as you arrive in the general vicinity of your new workplace. If you are a self-employed individual, you have to work full-time for at least 39 weeks in the first year of this job and for at least 78 weeks total in the first two years of your work. Again, this period of self-employment must begin right after moving to the new area. A few exceptions to the “time test” include disability, involuntary separation, and death.

It’s important to keep track of your moving expenses by documenting the specific amounts that you pay in all facets of a move. To calculate your deductible moving costs, use Form 3903: Moving Expenses. These deductions are then reported on Form 1040 as an adjustment to taxable income. One exception to the aforementioned “tests” is for military members who are given orders to move to a new location. The moving expenses that military members incur are generally deductible and may be covered by the military.

Learn more about tax deduction opportunities to reduce your IRS tax bill by contacting 1800Accountant. Call 1-888-749-01171-888-749-0117 or click over to www.1800accountant.com.

5 Tips on Projecting Small Business Profits

1800Accountant offers tips on projecting small business profits.

1800Accountant offers tips on projecting small business profits. (Image credit: Flickr Creative Commons)

Because the goal of every small business is to make money, projecting small business profits is critical to the future success of the entity. 1800Accountant offers a few tips on how to make these calculations to help you paint the clearest possible picture of your future profitability:

1. Be patient and reasonable.

First off, it takes a lot of time to start turning a profit. In fact, many small business owners aren’t on the positive side of the ledger until they are a few years into running a business. By keeping this in mind, you’ll realize that your profit projections for the very near future should be fairly low if you’re just getting started. Going from being in the red to being in the black takes a lot of time, and being patient throughout it all is a must. This is why you should always underestimate your profit projections, especially early on.

2. Account for the products or services you offer.

Having the ability to gauge how much income you could bring in largely depends on how many different products or services you offer and what they cost. You’ll have to make an estimation on how popular these offerings could be and how many products or services you could sell over a given time period. Is what you are selling something a person would buy once? Would a customer have any reason to buy several of one item? Would a customer have any reason to utilize your services on an ongoing basis, or are they designed for one-time use? A type of a product or service and everything about it plays into your profit potential.

3. Account for the prices/rates you charge.

If you think you could sell 100 items over the next 6 months, and each widget goes for $100 apiece, this would give you $10,000 in profits over that given timeframe. However, there are obviously certain tax liabilities you’ll have to consider before getting a net profit amount that is all yours to keep, such as sales taxes. Using simple addition and multiplication, you can get a reasonable idea of your possible profits, but remember that the number you come up with will more than likely be different from the actual profits you make.

4. Consider the shopping habits of the customers you’re targeting.

The target market of a small business is directly tied to the amount in profits that a company can generate. Some people are more likely to buy things at certain times of the day, while others are more inclined to make purchases at certain times of the year. These are just a few of the many behaviors of consumers to take into account when predicting how much money you can earn during a given timeframe.

5. Consider your initial startup costs and any regularly occurring expenses.

All small businesses endure some startup and ongoing expenses. Make sure you account for each and every one of them when handling your finances and making projections about your financial future. While the purchase price of a tangible item or an intangible service is one thing, there are obviously other costs that go into producing something, and these production costs and other related expenses should be highly considered as well.

Be sure to turn to 1800Accountant for all of your small business accounting and development needs. 1800Accountant proudly assists small business owners in all industries and can help you in projecting small business profits that are sensible. To learn more, call 1-888-749-01171-888-749-0117 or check out www.1800accountant.com.

Are meals and entertainment an IRS tax deduction?

We all like to eat good food. We all like to have fun by being entertained. So in the eyes of the IRS, is money spent on meals and entertainment tax deductible? In certain instances, these expenses can qualify as a write-off when tax season arrives.

Often viewed as commonly missed deductions, meals and entertainment can generally be deducted if they fall under the category of business expenses. These costs should be ordinary, necessary, and directly related to a business activity. For example, several employees may get together to eat at a restaurant. If they discuss business-related subjects during their meal, up to 50% of the cost of this meal would typically qualify as a tax deduction.

While the 50% deduction option is more common, there are some opportunities to fully deduct these expenses. Meals or entertainment activities that are provided for the benefit of a company’s employees may qualify as a 100% write-off for all of the costs associated with them. These may include costs for a holiday party or picnic, coffee, water, or donuts provided to employees at a workplace, food or drinks provided to members of the public for promotional reasons, and workplace meals offered to at least half of a company’s employees to encourage off-hours work, This could be for work completed on weekends or holidays.

To convince the IRS that these deductions are legitimate, it’s important to hang on to your receipts and write down the names of the individuals you were with at a meal or event during which business activities were conducted. You should also document the specific business issues conducted during this time. If you fail to document these details, it could be nearly impossible to take advantage of these tax-saving opportunities.

If you are an employee and you are reimbursed for these expenses, you cannot claim them as a tax deduction. If you aren’t reimbursed, you can use either Form 2106 or Form 2106-EZ to claim them. This information can then be transferred to Form 1040, Schedule A. The deduction may be subject to the 2% of adjusted gross income limit, though, which applies to other deductions as well.

Learn more about tax deductions that can reduce what you owe in taxes by working with the accounting professionals at 1800Accountant. Call 1-888-749-01171-888-749-0117 or visit www.1800accountant.com.

Reasons to Change the Structure of Your Small Business

Transitioning from a sole proprietorship to a corporation can give a small business much more credibility.

Transitioning from a sole proprietorship to a corporation can give a small business much more credibility. (Image credit: Flickr Creative Commons)

Just like a wide array of fresh pizza toppings, there are various types of business structures that exist. These include a sole proprietorship, partnerships, an S corporation, a C corporation, and an LLC. Sometimes it makes sense to change from one entity structure to another. 1800Accountant explains why you may wish to change from your current business arrangement to something different:

– It can make your business more formal.

The simplest aspect of changing from an informal business structure to a more formal entity is to give your small business the credibility it deserves. If you only operate as a DBA, you probably don’t have “Inc.” or “LLC” in the name of your company. To do this, you should adopt a formal structure that will be more attractive to others, including potential investors, clients, and employees. Major corporations out there have their current structures for a reason. To compete against them, or to at least have a similar setup, changing from a sole proprietorship or partnership to something more formal certainly has its benefits.

– It can reduce your IRS tax liability.

Self-employed entrepreneurs who work as sole proprietors or in partnerships tend to be on the hook for some of the highest IRS tax rates. When you take on the structure of a business entity like an LLC or a corporation, you can reduce how much you pay in taxes, and you can have your business taxed separately rather than being taxed on your business activities through your personal taxes. All small business owners want to hang on to more of the money they make, and this can be done by having a formal business entity in place.

– It can help you protect your personal assets.

Along with tax benefits, adopting a formal structure for your small business can also mean added protection for your personal assets. A sole proprietorship exposes what you personally own (such as a home and a vehicle) to creditors, lawyers, and others who could potentially pose a threat to your business. Because of this, having the protection of a separate business entity can help put a shield up between what you do business-wise and what you do in your personal life.

– It opens the door to additional opportunities for you.

Changing from one business structure to a different one can offer you the opportunity to take advantage of additional benefits as well. This includes changing from an informal structure to a formal one or from one formal arrangement to another. Going from a sole proprietorship to a corporation gives you chances for more flexibility and deductions. Going from an LLC to a corporation or vice versa can even be an appropriate decision in some cases. Be sure to analyze all of your options and find the best one that fits your type of business, especially if you choose to change after adopting one.

– It can help you revamp/revitalize your company.

Overhauling a company is often necessary due to a variety of reasons. If you change what your business offers, it could be beneficial to move to a different type of entity. As referenced earlier, if you want to become more official and have others take you more seriously, it could help as well. Any significant change within a company may necessitate a change in how your business is assembled from a legal and tax perspective. Just be careful that you make a smart decision for yourself and your company prior to making drastic changes.

1800Accountant can assist you with all of your small business development and accounting needs. Call 1-888-749-01171-888-749-0117 or check out www.1800accountant.com.

Tips on calculating your small business startup costs

1800Accountant offers tip on calculating small business startup costs.

1800Accountant offers tip on calculating small business startup costs. (Image credit: Flickr Creative Commons)

Not only is launching a brand new small business very time-consuming, but also it can be quite costly. This is why having a good handle on the startup costs of a company is a must. 1800Accountant suggests asking yourself these questions to get a rough estimate of your startup expenses:

– What type of business structure will you take on?

Registering a formal business entity with your local state costs money. Even though it may not break your budget, it’s certainly worth lumping into the category of startup costs. Registration fees typically apply to businesses like corporations and LLCs. If you take a more informal structure like a sole proprietorship or partnership, you may not be required to pay such a fee.

– Will you work from home or have a separate business location?

Working out of a home office and working out of a separate location are two very different approaches to take when starting a company. Because of this, the costs associated with each of these options are also quite different. If you work from home, you can save some money by avoiding the costs of rent, insurance, utilities, and other expenses related to operating your business out of a different location. In fact, home-based business owners may already have everything they need in terms of office supplies, computers, desks, and other tangible items. Business owners working in office complexes or in retail stores often incur additional costs on top of what they’re paying for their personal costs of living. You should estimate these amounts to get an idea of how much you’ll owe in startup costs according to where your business is based.

– What items/services will you need to operate the business?

All small businesses have to pay for a wide array of items and services in order to stay in business and be profitable. For example, will you need a separate work laptop with special software on it? Will you need separate Internet access, phone service, or even an accounting firm onboard to help your company run smoothly? Will you need to invest in a digital sign to put outside your store, or will you opt for a flashy website with cool graphics and high-quality videos to promote your business? Whether it’s a physical item or an intangible service, many of these expenses fall under the startup costs umbrella, and you should write down each and every one of them to make a reasonable calculation about them. Remember that some of these are one-time costs and some will be ongoing.

– What items/services will you offer?

Production costs can be quite hefty, so you should have a firm grasp on how much it’ll cost to make your products, where they’ll be produced, and how many you intend to create over a given timeframe. If you plan to sell services, make sure you cover the costs of both time and money spent on providing these services so that you can set reasonable rates for them, while also getting a solid return on your investment. Shop around when dealing with the costs of inventory and other things so that you get the best deal and the best quality at the same time in order to reduce your startup and ongoing business expenses.

Keep in mind that many startup costs are tax deductible. When making your calculations, don’t forget that you should be able to write off some of these expenditures to reduce your tax liability and help you save more of the hard-earned revenue your business generates.

For all of your small business accounting and consulting needs, turn to the accounting professionals at 1800Accountant. Learn more by calling 1-888-749-0117 or by visiting www.1800accountant.com.