Bookkeeping & Accounting

The Lowdown on Auto Expenses—Can I Deduct My Car? (Part 2 of 2)

In Part 1 we looked at the difference between business use and personal use for a vehicle, and discussed how to track and deduct actual auto expenses versus tracking business-related miles. (Read Part 1 here.) In Part 2 we will explore the advantages of using the standard mileage rate over actual expenses for business, and describe standard mileage rates for allowable, non-business use.The beauty of the standard mileage rate is fourfold.

  1. You don’t need to track every receipt for every expense.
  2. You likely are already tracking your business versus personal miles (to find your business-use percent).
  3. You can always switch to actual expenses for a year in which you anticipate higher actual expenses. For example, use actual expenses in years you incur a lot of repair costs (you have this freedom only if you used the standard mileage rate for the first year the particular vehicle was placed in service).
  4. You can avoid the pesky depreciation recapture in the event you later sell the vehicle.Other Car Deductions

In case you’re curious, the standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. So, you get to factor in all your actual expenses without the hassle of tracking each one. As a reminder, the standard mileage rate for 2015 is $0.575 (up from 56 cents in 2014).

There are other types of mileage (non-business) that are deductible on your tax return. Without getting bogged down in the details, the rates are:

  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014.
  • 14 cents per mile driven in service of charitable organizations.

The rate for medical and moving purposes is based on the above-calculated variable costs, such as gas and oil. The charitable rate is set by law.

Of course, all of the above is a general characterization of vehicle-related deductions, which should give you a good idea of which method is better suited to your circumstances. But we all know how nuanced the IRS can be! So, connect with us so we can give you nuanced insight on your particular circumstances in order to help you make the best, most informed business decisions. Remember that at Thrive Business Group it’s

Your Life. Your Business. In That Order.

 

The Lowdown on Auto Expenses—Can I Deduct My Car? (Part 1 of 2)

Running a business can be expensive. Fortunately, the IRS allows certain expenses to offset your business income. A key source of such deductions is your vehicle business expenses. In what follows, I will sketch an outline of how vehicle deductions work and help you determine the deduction method that is right for you.

First, what counts as business use of a vehicle? Vehicle expenses are those ordinary and necessary expenses paid or incurred during the taxable year in carrying on your business and that are related to your vehicle. Simple, right? Here are a couple examples to clarify:

Business Car Deductions

Business Car Deductions

Commuting to or from your regular place of business are miles that are never deductible. Driving to and from a client’s office for business purposes, however, is business related, as is picking up office supplies or driving to a business conference. These, therefore, are deductible.

As you likely are aware, the vehicle need not be reserved solely for business use to claim its deductions, but you definitely cannot deduct the personal-use portion of the expenses. The easiest way to track personal versus business use is to track your mileage. For example:

You drove the car a total of 100 miles in January, 40 of which were business related. In this case, you could deduct 40% (40 miles / 100 miles) of vehicle expenses for January.

There are two main ways to deduct your vehicle expenses. You can either deduct your actual expenses (gas, oil, repairs, etc.) or you can use the standard mileage rate. Here are some facts to know about each.

Deducting actual expenses is exactly as it sounds—you track all expenses related to your vehicle for the year and deduct the business-use percent on your tax return.

Setting aside depreciation for the moment, if you had $3,000 in gas, $250 in oil changes, and $500 in repairs then, assuming 40% business use, your total vehicle deductions for the year equal $1,500 (40% x ($3,000 + $250 + $500)).

Depreciation complicates matters a bit, but the long and short of it is simply that each year you deduct a certain percent of the vehicle’s original cost to you (reduced by the personal-use portion). The downside is that if you sell the vehicle, any amount the IRS so graciously let you depreciate is now treated as ordinary taxable income to you (so called “depreciation recapture”).

Standard mileage is easy. Again, it’s a matter of tracking total business miles for the year. A mileage logbook (which correlates with your work calendar) is useful here. The standard mileage rate for business purposes is 57.5 cents per mile for 2015 (up from 56 cents in 2014).

If you log 1000 business miles, you deduct $575 in 2015 (1000 miles x $0.575 per mile). (No personal-use reduction here since this is based purely on business miles.)

Make sure to catch Part 2 to learn the advantages of using the standard mileage rate!

Changes for the 2015 Tax Year

In an effort to help you make the best personal finance and business decisions in the coming year, here are the 2015 tax numbers recently published by the IRS and SSA (and their 2014 counterparts):

2015 Tax Changes

2015 Tax Changes

 

 

 

 

 

 

 

 

 

 

 

 

If you have any questions, concerns, or are looking for advice on how to put this information to the best use, contact us!

 

 

Affordable Bookkeeping Solutions (Part 2 of 2)

In Part 1 of Affordable Bookkeeping Solutions we discussed the limitations of bank statements and spreadsheets for running your small business. (Read Part 1 here.)

In this follow up, we will look at two great solutions to help you (i) keep accurate records of all the business’s transactions, (ii) keep this data separate from your personal financial activity, (iii) generate usable reports, all while (iv) remaining affordable.

What to Use

For the small business owner, there are really two main options for accounting programs. The choice comes down to two factors: the complexity of the business structure and the size of the business.

Free online accounting software for small businesses -- Wave

Wave is the ideal accounting program for small or simple businesses: service-based businesses, businesses with fewer than ten employees, or a business that grosses less than $50,000 a year (of course, product-based businesses or businesses doing more than $50,000 can use it successfully, too).

Because it is a legitimate accounting program, the data is stored with integrity and has trackable history, making it consistently accurate. You can connect multiple business and personal finances with one account, keeping each separate, but all handy. All the financial reports you’ll need come stock with the program, so reporting is nailed. And you can’t get more affordable than free.

Other benefits of Wave include:

  • It’s cloud-based, so it’s wherever you need it to be,
  • Make your accountant a collaborator to answer questions or clean up data,
  • Connect your business and personal bank and credit card accounts,
  • Create and email invoices with your company’s branding,
  • Receive payment on those invoices (for a small processing fee),
  • Run your payroll (for a small processing fee),
  • Export data and reports to spreadsheets, and
  • Mobile apps to track receipts, do payroll, distribute invoices, et al!

Quickbooks is for those with more complex business structures, or those grossing more than $50,000 a year.

While there are many QuickBooks versions available, each can do what Wave does, and then some. QuickBooks is the standard accounting software in small business. The primary advantage of QuickBooks over Wave is the versatility of its data-tracking and reporting capabilities; where Wave comes stock with about 10 reports, QuickBooks includes 100+, all customizable and with the ability to filter. The tradeoff is the cost—while still affordable, no version is free.

Where to Go from Here

Now that you have an idea about what to look for in an accounting program, talk to us to help you narrow down your selection either to Wave or to the QuickBooks option that is right for you.

And as members of the Wave Pro Network and as QuickBooks ProAdvisors, we at Thrive Business Group have the skills and knowledge to install, setup, train, and support your small business.

We will work with you to ensure that you are getting the most out of your accounting program.

We understand the challenges you face and know that keeping accurate records is vital to your business success. We can offer guidance on everything from complex accounting questions to mastering advanced features of your particular accounting software.

Affordable Bookkeeping Solutions (Part 1 of 2)

At Thrive Business Group we understand that it’s difficult for small businesses owners to make confident decisions without reliable financial information. The first decision a small business owner faces to that end is “Which accounting program do I use?”

The Criteria

The keys to having reliable information are (i) to keep accurate records of all the business’s transactions, and (ii) to keep this data separate from your personal financial activity. Any good accounting program must allow for these two things.

Further, more than just recording the information, the data must be usable—it must be organized, unambiguous, and relevant. In short, (iii) you need a program that generates reports.

Of course, any program you use must (iv) be affordable.

What NOT to Use

Many small business owners are content simply to rely on their companies’ bank statements to track all of their business activities. Others add a spreadsheet for basic tracking.

Both bank statements and spreadsheets are affordable. You needn’t spend a dime for bank statements, and there are many free alternatives to Microsoft Excel for spreadsheet programs (though the sophisticated spreadsheet user may find her reporting ability hampered). However, both these methods are limited.

Separate bank accounts are an essential part of keeping personal and business finances separate. And while many small business owners think that bank records are sufficient for accurate records, they are mistaken. Banks can make mistakes just as well as you can! Without a distinct accounting method, those mistakes become harder to track, potentially costing you money.

Though certain bank-tracking programs like Mint offer reports, the reports will not be enough to satisfy your needs in leading your business. None of the reports can give you the relevant information you need to make wise business decisions, to wow potential investors, or to convince potential creditors of the soundness of your business.

Further, don’t forget tax time! Tax time becomes much more stressful and more expensive than it needs to be when relying simply on bank statements—the amount of time either you or your accountant need to reverse-engineer your fiscal year escalates drastically without a separate accounting system.

Spreadsheets, when used in conjunction with bank statements and an accounting program, are powerful tools in the business world. They are one of the best ways to manipulate data when coming to business decisions.

However, they lack the integrity necessary for keeping info accurate. Think about it—one careless keystroke can compromise an entire year’s worth of data; and without a way to backtrack, the discrepancy may never be discovered!

And while sophisticated spreadsheet users may be able to create useful reports, few business owners have taken the time to become such sophisticated users.

Be sure to read Part 2—What to Use—for two great solutions to this accounting conundrum!