Depreciation deductions can be extremely valuable for a business. For example, in a recent court case, a federal judge ruled a company could begin taking its depreciation deductions for two buildings housing retail stores at a point prior to when they were “open for business.” The ruling allowed the company to show a loss for that tax year, which the company then used to offset income in earlier years and ultimately claim a total tax refund of over $2 million.*
Although this case involved a special 50% depreciation allowance made available by the Gulf Opportunity Zone Act of 2005, the fact remains that even regular depreciation deductions can significantly reduce a company’s tax bill.
If business property has a useful life greater than one year, the owner generally is prohibited from deducting the full cost of the property in the year it is placed in service. Instead, a portion of the cost may be deducted each year as depreciation. The depreciation rules apply to most types of tangible property, with notable exceptions being inventory and unimproved land.
Different schedules specify the proper depreciation calculations for different types of property. The most widely used schedules are set forth under the Modified Accelerated Cost Recovery System (MACRS). MACRS assigns property to a recovery class based on the property’s “class life.”
For example, office equipment is assigned to the seven-year MACRS class. Assume a business purchased a piece of equipment for $20,000 and placed it in service in 2012. The property would be in its fourth year of service in 2015. Applicable IRS tables indicate that the appropriate deduction percentage is 12.49% of the cost, so the business could deduct $2,498 for that equipment in 2015.**
Placed in Service
As the above-mentioned court decision suggests, the date property is placed in service can be an important consideration. Though the IRS has specific definitions for different types of assets, generally, property is first placed in service on the date the taxpayer first places it “in a condition or state of readiness and availability for a specifically defined function.”
Because the definition is broad, taxpayers sometimes litigate how it should be applied to specific situations. In the decision mentioned above, the key issue was the “placed-in-service” date of two buildings that would eventually be used as building supply stores. The IRS had argued that the “placed-in-service” requirement meant that the buildings had to be open for business for retail customers. The court disagreed, however, holding that the buildings were placed in service when they were substantially complete and limited certificates of occupancy had been issued so that workers could enter the buildings to install necessary racks and shelving.
Businesses may be able to benefit from the tax law’s Section 179 provisions to garner faster write-offs for some of their asset purchases. Currently, businesses will be allowed to expense up to $25,000 of qualifying property placed in service during the 2015 tax year, with that limit subject to further reduction once the amount placed in service exceeds $200,000.*** In addition, a current deduction may be available for certain limited amounts paid for property that the business expenses for financial accounting purposes. We can tell you more about these “de minimis safe harbor” regulations.
If you are tired of overpaying taxes, call 404-445-8095 and ask for Victor.
Delerme CPA helps businesses minimize their tax obligations legally and depreciation is one of those tools that helps us minimize your taxes. To service the Atlanta market, we have offices in Midtown Atlanta and Perimeter Center. While we work with all types of businesses, we have additional expertise in hotel accounting, restaurant accounting, and international taxation.
* Stine, LLC v. USA (DC LA, 1/27/2015)
** Calculation assumes the half-year depreciation convention.
*** Congress kept the Section 179 limit at $500,000 for 2014 in late-year extender legislation.
If you have a foreign bank account that has not been reported to the IRS, then you could be facing serious civil penalties and even criminal penalties. These penalties fall under the Foreign Bank Account Report, (FBAR) violations.
First, it is important to determine if you are required to report your foreign bank account. It comes down to being able to say yes to the following four questions:
- You are now a US citizen or permanent resident or have been in the last six years.
- You have had a foreign bank account for a year or longer since 2008.
- Your balances in all of your foreign accounts exceed $10K
- You have not reported the account through the FBAR paperwork to the IRS.
The civil penalties for not filing the FBAR will be the greater of 50% of your bank account or $100K. The IRS has also indicated that it is willing to charge these penalties cumulatively for up to four or even six years.
This means that you can be charged these penalties for each year you have had the foreign bank account and not reported it to the IRS regardless of the fact that the penalties may well out pace the actual dollar amount in your account.
In addition to expensive civil penalties, you can also face criminal penalties. If the IRS determines that you willfully knew that you should have filed a FBAR and didn’t, they can charge you under FBAR violation laws as well as normal criminal tax prosecution laws.
A criminal prosecution typically occurs when a person has a large amount of taxable income in their foreign bank account that has not been claimed on their tax return.
A tax accountant or tax attorney can walk you through your options if you find yourself in this situation, as the IRS does offer voluntary disclosure programs, but even with taking advantage of one of these programs, you will still suffer the sting of IRS penalties.
If you are looking to avoid tax issues with the IRS, call 404-445-8095 and ask for Victor Delerme.
Delerme CPA is a United States CPA Firm licensed in Georgia and Puerto Rico. We work with businesses and individuals all over the Latin America, South America, Carribean and throughout the Southeast. We are multilingual CPA’s and international tax compliance is our expertise.
For many that are native to Puerto Rico, the island’s economy is forcing them off the island and onto the main land of the United States. Puerto Rico’s economy is in a death spiral and families are losing their homes and businesses, so why do the rich continue to flock there? The answer can be summed up in two words: tax exemptions.
While the middle and lower economic classes are streaming off the island, the super rich are taking advantage of tax exemptions enacted in 2012 to help the economy. Simply put, Puerto Rico are offering tax exemptions to rich Americans, so they will buy existing businesses and open new ones.
These tax exemptions, which fall under the 2012 Export Services Act and the Individual Investors Act, provide non-residence investors a 3 to 4% flat income tax, zero property tax, as well as 0% tax on earnings and profits.
In addition, investors can enjoy a0% tax on dividends and interest as well as a 0 to 10% tax on long-term capital gains. When compared to tax rates of up to 20% in the United States, it can be quite the incentive for rich investors.
For example, hedge fund owner John Paulson is currently investing $1.5 billion dollars in real estate on the island in the form of luxury resorts and hotels such as the Condado Vanderbilt Hotel and the St Regis Bahia Beach Resort.
While Puerto Rico’s debt crisis continues to worsen, and about 200,000 residents are leaving each year, you can expect the influx of American investment money to continue for the foreseeable future.
Delerme CPA is a certified public accounting firm in Atlanta GA. We are also licensed to operate in Puerto Rico and bilingual. If you are considering a move, call 404-445-8095 and ask for Victor Delerme.
Delerme CPA provides international tax services to businesses and individuals. Our tax services include for business owners include international tax planning, export incentive planning (IC-DISC), foreign tax credits, transfer pricing and much more. For individuals, we provide expatriate tax preparation, inpat for foreign nationals, foreign bank reporting (FBAR), and pre-immigration tax planning. We also help small businesses set up their business within the United States.
Section 179 allows a business to deduct the total cost for qualified leased, financed, or purchased equipment in the year it was purchased instead of depreciating the cost over the life of the equipment. Typically, however, Congress waits until after the first of the year to renew this section which can hurt small business owners and manufacturers as well as farmers, dentists, and medical providers.
Very often, Congress doesn’t get around to renewing tax breaks, such as Section 179, until well after the end of the year. Then they make it retroactive. This creates all sorts of issues for businesses who attempt to plan purchases with tax breaks in mind. Often, small businesses will miss out on the tax altogether.
While tax breaks such as Section 179 are typically renewed each year, it isn’t a given. That means businesses as well as farmers and even those in the medical profession won’t know if they are allowed to deduct $25,000 or $500,000. The final approved amount depends on whether or not the larger deductions are renewed. If not, the limit reverts to the original $25,000.
This can make a buying decisions difficult. For example if a farmer needs to buy a new combine, the farmer is looking at an investment of up to half a million dollars. If Section 179 isn’t renewed at the higher levels, this investment may need to be reconsidered. The same goes for medical or manufacturing equipment.
Still, for a small business, even the limit of $25,000 can make a tremendous difference. As off-the-shelf software also qualifies for this deduction, a small business could update their software to enhance efficiency therefore increasing their bottom line.
Tax planning is a critical component of a successful company. That’s why it is so important for Congress to act quickly and in a timely manner, so small businesses can plan for the next year while they still have the time to implement smart decisions. Small businesses are the backbone of this county and do drive the economy, and Congress shouldn’t forget that.
If you are tired of overpaying taxes, call 404-445-8095 and ask for Victor Delerme.
Delerme CPA is a top rated Atlanta CPA Firm. Our practice services all types of businesses and individuals with an emphasis on tax matters. For additional expertise, we have boutique tax services for restaurants, hotels and international taxation.
A federal jury trial awarded $21.5 million in damages to a Springfield, Illinois man who was injured by an automatic sliding-glass door on a Holland America Line cruise ship dating back to 2011.
The personal injury damages awarded by the jury were $5M, which are tax free. The punitive damages were $16.5M which means a windfall for the IRS. That’s right, the entire $16.5M is taxable and the attorney fee, which is normally contingent for personal injury cases (30-40% contingent fee), will be challenging to deduct. That means the IRS will get the largest share of the $16.5M and the attorney will get a large cut as well.
Shockingly, it pays to evaluate the tax implications into your legal decisions when the punitive awards could create a huge tax bill.
As you might suspect, Holland America Cruise has appealed the verdict so a settlement for an amount less than $21.5M, but a higher award for personal injuries (higher than $5M) may be a win win solution.
Delerme CPA is a Atlanta CPA Firm with two convenient offices, Midtown Atlanta and Perimeter Village. If you are seeking to minimize your tax situation, call 404-445-8095 and ask for Victor Delerme. Our initial consultation is free.
While most people are familiar with tax benefits for other types of investments, often times, they are less familiar when it comes to the tax benefits of health savings accounts. There are three such benefits that you should know about and take advantage of.
The second tax benefit comes on the interest side. Health savings accounts, do earn interest, and this interest is tax free. This allows an individual to use the account for long-term appreciation as the money does grows tax free. In that regard, it is very much like a Roth IRA with the added benefit of a current tax deduction.
The third tax benefit is that the owner of the account has the option of taking tax free withdrawals for medical expenses. These expenses must quality, but they do include almost all services provided by licensed health providers as well as substance abuse treatment and prescriptions.
Currently, in 2015, an individual can contribute up to $3,350 and a family can contribute up to $6,650. For those over the age of 55, an extra $1,000 contribution per year is allowed.
Finally, it is important to note that health savings accounts do not have a limit on carry-overs or a requirement on when the funds must be used. This is what enables them to be used for long-term savings to offset increased health-care costs or additional costs after retirement.
While health savings accounts haven’t always been on the forefront of investment options, with health insurance policy’s current rising deductibles and out-of-pocket expenses, more individuals are qualifying for the accounts, and with the tax benefits, it’s wise to give them a look.
If you are tired of overpaying taxes, call 404-445-8095 and ask for Victor Delerme.
Besides being healthier for the environment, purchasing an electric car can be healthy for your tax return. However, there are a few requirements that go hand-in-hand with the purchase of an electric car that one needs to understand to reap the full benefit from the tax credit.
Put simply, the current tax credit for purchasing an electric car is $7,500. This tax credit is not a rebate, so you will not receive it when you purchase the vehicle, nor is it a tax deduction. That means you cannot use it to reduce the amount of your taxable income.
How to Use an Electric Car Tax Credit
In the year you purchase an electric car, you are allowed to reduce the total amount of income tax you owe by $7,500. This means that if you own less than $7,500, you will lose the remainder of the tax credit. For example, if your tax liability is $6,500, then that is the full amount of the tax credit you will receive. The balance is not a refund nor can it be used to offset future tax liabilities.
Determining Which Cars Qualify for the Tax Credit
When considering the purchase of an electric car, keep in mind, it must be a new vehicle that will be used for your personal use. You cannot use the credit on a used car or a lease as the leasing company typically receives the tax credit. In addition, the car must have been manufactured by a car company and cannot be a conversion. Finally, the car must be used in the United States.
As with all things related to the IRS, there are conditions that must be adhered to when using the electric car tax credit, but the upside is that by utilizing this credit, it is possible to bring the cost of an electric car down to where it is inline with a gasoline vehicle.
If you are tired of paying too much in taxes, then call 404-445-8095 and ask for Victor. Our services are designed to lower your taxes legally.
Hello everyone, I hope everyone is having a happy Friday. In the past, Delerme CPA has touched base on some of the topics we’re about to talk about, but we will recap in order to help you guys with the upcoming tax deadlines. There are a few ways that can help save money in taxes. Harvest tax-losses is a way where capital losses, if they exceed your capital gains, can offset your taxable income of up to $3,000. If you feel as though your future deductible expenses may be higher, you can prepay your expenses ahead of time to give yourself a head start. Another great way is through investments. So with a 401(k), your contributions to this account reduce your taxable income of the current year. You could also do an IRA conversion, from traditional to Roth, but you have to keep in mind that in the future you will need to pay income taxes. Always consult your financial advisor before making a decision like that. A 529 college plan is also a good way of saving some money. Let’s say you you want to gift a portion of it, as long as it does not exceed $14,000, it will qualify as a gift-tax exclusion. Speaking of gift-tax exclusion, you can give away as much as $14,000 that becomes excluded from your taxable income, a 529 is a great example of this. Finally we have charities. With donating stock to charities, your tax deductions on said charities become equal to the fair market value of the donation. These are just a few of many to come. Once again guys, if you need any financial assistance or consulting, be sure to contact Delerme CPA.
Alright, last post to follow up the first 2. We apologize for the length, but it’s a lot of information to cover. Okay so we’ve got Research and Development Tax Credit along with Sales and Use Tax Exemptions. We’ll try to make it short and sweet. So with research and development, a tax credit is allowed for research conducted within Georgia for any business engaged in manufacturing, broadcasting, processing, warehousing and distribution, research and development industries, tourism, or telecommunications. Credit earned is the portion of the increase in research and development spending. This credit can then be used to offset up to 50% of net Georgia income tax liability, after all other credits have been applied. Any unused Research and Development Tax Credits can be carried forward for no more than 10 years.
Sales and Use Tax Exemptions offer companies to purchase various goods and services tax free as a way to help lower their cost of doing business. Manufacturing plants play a big role here. Equipment, repair/replacement parts, energy, materials, among other factors, which are essential in the manufacturing process and used in a manufacturing facility in the state of Georgia are exempt from sales tax. That concludes our brief overview of a few tax credits that are available for you in the state of Georgia. We strive to help our clients out with any questions regarding taxes or any financial plans, so feel free to contact us. Have a nice day.
In continuation to our last post, we are going to talk about Investment Tax Credit and Retraining Tax Credit. Based upon the same tier system that the Job Tax Credit follows, a taxpayer can obtain a credit against income tax liability. The taxpayer had to have operated an existing manufacturing or telecommunications facility or operated an existing manufacturing or telecommunications support facility for the previous 3 years in the state of Georgia. Here’s where the value of the credits come in: Companies expanding in Tier 1 counties must invest $50k to receive a 5% tax credit, they can then increase that to 8% if they invest in recycling equipment, pollution control, or in converting a defense plant manufacturing facility to a new product. Similar principle for companies expanding in Tier 2, $50k investment for 3% tax credit or 5% if investments go to recycling equipment, pollution control, or defense conversion activities. For both Tier 3 and Tier 4, it’s a $50k investment for 1% tax credit or 3% if their investment goes into recycling equipment, pollution control or defense conversion activities.
Now the Retraining Tax Credit is pretty straight forward. It allows employers to claim certain costs of retraining employees to use new equipment, new tech, and new operating systems. The value of the credit can be 50% of the direct cost of retraining full-time employees with up to $500 per employee, per training program. The annual maximum of the credit amounts to $1,250/employee. Keep in mind though, that the credit cannot exceed 50% of the taxpayer’s total state income tax liability for that tax year. Any claimed credits that go unused can be carried forward for 10 years.