The Small Business Tax Help Blog

Posts Tagged ‘travel’

Question: Part of the nonemployee compensation on my 1099-MISC includes expense reimbursements. What should I do?

I did some freelance work in 2008 and had some business expense reimbursements that were included in some of my regular paychecks. These amounts have been included as part of my income (“nonemployee compensation”) on my 1099-MISC form. I shouldn’t have to pay income taxes on expense reimbursements, should I? Is there anything I can do to get the nonemployee compensation amount reduced to reflect only my income (without my expense reimbursements)?

Answer: You can deduct these expenses on your tax return.
Make sure you have documentation though - receipts, credit card statements etc.

Haverford commissioner's expenses spark questions

HAVERFORD — Questions about monthly expense statements filed by a longtime township commissioner have sparked a review by the Delaware County District Attorney’s Office.

eForm - Electronic form with workflow

Question: Small business vehicle expense tax write off?

OK, so I know that I can use gas as a tax write off for my small business as long as it is used for my business, right?

What about the actual car payment?

Answer: There are two ways to claim vehicle expenses, standard and actual. Standard uses a flat rate per mile of business driving and requires written evidence (such as a log book, or calander showing trips made and distances). This is by far the easiest way to claim expenses and does not require the keeping of receipts for other expenses (like car washes, oil changes or gasoline). The Actual method does require you to keep all the reciepts of every expense on the car and then you still have to keep a log book of mileage to determine the percentage of business use (exceptions are given for special use vehicles like ambulences and hearsts that normally aren't used for personal trips...I don't see too many hearsts in the Wal-mart parking lot :} ). You also have to figure the depreciation on the vehicle you are using based on the value of the car the day you started using it for business. If you change cars or use several cars (yours is in the shop, so you use your husbands for a few weeks, etc.) you have to use figure all actual expenses for each car and determine business use for each car. You are also subject to recapture rules if you depreciate your car and then sell it for more than you have left to depreciate. Not a fun situation to get yourself into. The IRS also loves to audit these deductions, so make sure your paperwork is in order when you work up your numbers!

You can also take the interest portion of your car payment, but it is also subject to the percent use rule (10% business use, 10% of interest is deductable on your Schedule C). This is also true if you take standard mileage, but only for business use, not employee business use which is another matter altogether!

Winter can chill business, cash flow

This winter's long cold snap has made people across the country miserable. Many small-business owners are going to feel even worse when they see their heating bills.

How To: Turn gas receipts into money to lower your taxes !

The earning capacity of a company is the primary driver of its value. Cash flow is the preferred measure of earning capacity for valuation purposes because it represents a purer form of earnings. Calculating cash flow begins with the net income or loss of a company then adjusting it for a number of items to achieve a figure that accurately portrays the true earning capacity of the company.

Depreciation & Amortization

Depreciation involves writing off or expensing the cost of tangible assets like buildings and equipment over their useful lives. Amortization involves the same process for intangible assets like franchise fees and liquor licenses. Depreciation and amortization expenses are the result of accounting entries where no cash was actually spent, so they must be added back to net income to determine cash flow.

Non-recurring Items

Income or expenses that are unusual or not likely to recur, distort the cash flow for that year. These items should be added back to (expense) or deducted from (income) net income. Some examples of non-recurring items are: the gain or loss on the sale of equipment, fines or penalties, writing off a large bad debt, or a major theft or casualty loss. Some unusual events may be due the cumulative effects of an ongoing situation. In these cases the income or expense should be allocated over the affected period.

Transactions with Yourself

The true earning capacity of a company needs to reflect adequate compensation to the owner for the services rendered to the company. The compensation of the owner should be based on the job market in its market area for similar positions. Small business owners wear so many hats that it is impossible to find jobs that will closely match what the owner does. Reasonable compensation can be estimated by taking the salary of managers within the same industry and adding a premium for all the extra duties of an owner. Another method is to use industry statistics that report the compensation of owners as a percentage of annual sales.

What you do with the estimated reasonable compensation figure depends on how your company operates. Since sole proprietorships and partnerships do not deduct owner compensation, the net income of the company should be reduced by the estimated reasonable compensation to determine earning capacity. The compensation actually paid to the owner of a corporation should be compared to the estimated reasonable compensation and the net income should be adjusted accordingly.

Closely held corporations often rent their real estate from the same person who owns the corporation. In these cases the rent paid should be adjusted, if necessary, to reflect market rates for similar properties in that area.

Discretionary Expenses

Expenses that are not necessary for normal business operations and are incurred at the discretion of, or for the primary benefit of the owner are called discretionary expenses. These expenses should be added back to net income to determine the true earning capacity of the company. Some common discretionary expenses are: expenses for the vehicle operated by the owner primarily for personal purposes, travel and entertainment, and charitable contributions. Some owners inflate the cash flow of their companies by overstating the amount of discretionary expenses, so these items should be kept to a minimum, reasonable, and easy to justify.

Interest Expense

Valuation is based on the hypothetical sale of a company. The sales of most small companies include the operating assets of the company free and clear of all liabilities. Therefore the current debt of the company is not relevant to the valuation, so interest expense is added back to net income.

Common Errors

Adjustments to net income must be made carefully because they have such a direct impact on the earning capacity and value of a company. Most business owners have little accounting knowledge, so they often make incorrect adjustments. Here are some common errors.

Sole proprietors cannot add back their compensation because their compensation was not deducted as an expense. The amount taken out or withdrawn by the owner was not deducted as compensation. Payments on loans for personal items like vehicles cannot be added back because the principal portion was not deducted as an expense and the interest portion was added back previously. A good rule is to make sure that the items you are adding back were actually deducted in the first place.

Conclusion

Adjusting the net income or loss of a company for the items described above produces a cash flow figure that represents a much more accurate picture of the earning capacity of a company. Since the earning capacity of a company is the primary driver of its value, you now have a key piece of the valuation puzzle.

Ex-mayor paid $900 for travel

GLOVERSVILLE – Former Mayor Tim Hughes was reimbursed $900 for using his personal vehicle for city business in October, November and December, city officials said Friday. Finance Commissioner Bruce Van Genderen said Hughes claimed the sport utility vehicle assigned to him for official use was not functioning properly, and Hughes used his own vehicle for three month.

Where the Hell is Matt? (2008) Internet homebased business