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Category: Business Taxes

What Gifts are Tax Deductible

Vyde’s Business Holiday Gift Giving Guide: Part 1, What Gifts are Tax Deductible?

The holiday season is the perfect time to show your clients and employees just how much you appreciate them. However, figuring out what to give, when to give it, and what’s tax deductible can be a daunting task. Vyde’s made it easy with our comprehensive, deductible focused Business Holiday Gift Giving Guide.

Finding a gift that is sincere, useful, meaningful to all clients, and tax deductible sounds like a whopping job. Not to mention sending it out on time, staying within a budget and somehow making it personal. So how can you wrap all of this up in one business holiday gift?

Is a Holiday Business Gift Tax Deductible?

Let’s start with the numbers. What is tax deductible when sending a business holiday gift to a client?

Like so many other tax deductions, there is a limit on how much you can deduct when it comes to gifts. Right now, the limit is $25 per recipient per year.

Perhaps you’re especially generous throughout the year and send your clients many gifts. It’s important to know that only $25 per year per recipient is actually deductible. So, if you sent your favorite client three $25 gifts this year totaling $75…you guessed it, you are only allowed to write off $25 for that client.

How about prepping that fabulous gift and sending it off to clients? Wrapping paper, cards, scissors, tape, ribbons and bows are all tax deductible so fancy it up before shipping it out! And when you get to that mile-long post office line this December, keep your receipts because shipping and stamps are deductible as well. These costs are an addition to the $25 per recipient limit, so the actual gift itself can be valued at $25 and these expenses are still deductible.

If the $25 limit feels restrictive to you, there is a circumstance that can help you deduct more—and probably cut your work in half, too. According to the IRS, if you give a gift of “entertainment,” you can deduct 50% of the cost.

Business Holiday Gift Giving Guide

Examples of entertainment gifts are concert tickets, sporting event tickets, movie passes, restaurant gift cards, vacations, hotel stays, etc. Clearly that $25 limit per recipient can quickly be surpassed in these categories, so your deductions may actually be greater than $25 each. Your clients are sure to love the gift of entertainment and you won’t have to bother with the ribbons and bows. In fact, most of this shopping can be done online and sent to your client electronically, so win-win!

FAQs for Vyde’s Business Holiday Gift Giving Guide

1. How can I combine sincerity, usefulness, meaning, and tax deductibility into one business holiday gift?

Finding a gift that ticks all these boxes might seem challenging, but it’s not impossible. Vyde’s comprehensive guide offers suggestions tailored for such occasions, ensuring your gift is thoughtful, practical, and tax-deductible.

2. Is a holiday business gift tax-deductible?

Yes, holiday business gifts can be tax-deductible. However, there are limitations. Currently, the IRS allows a deduction of up to $25 per recipient per year. It’s crucial to stay within this limit to maximize tax benefits.

3. What expenses related to sending out business holiday gifts are tax-deductible?

Several expenses associated with preparing and sending business holiday gifts are tax-deductible. This includes the cost of wrapping paper, cards, shipping, stamps, and other related items. These expenses are separate from the $25 limit per recipient, allowing for additional deductions.

4. How can I exceed the $25 per recipient limit for tax deductions?

One way to surpass the $25 limit is by giving gifts of “entertainment.” According to IRS guidelines, you can deduct 50% of the cost of entertainment gifts, such as concert tickets, restaurant gift cards, or vacations. These gifts often exceed the $25 limit, providing greater deductions while offering clients memorable experiences.

5. Where can I find more ideas for business holiday gift giving?

For additional ideas and tips on business holiday gift giving, explore the comprehensive gift-giving guide provided by Vyde. It covers everything from gift selection to recipient considerations, ensuring your gifts are both meaningful and tax-efficient.

For more ideas on business holiday gift giving, visit the rest of our gift giving guide:

What To Give and Who To Give It To

Do’s and Dont’s of Client Gift Givingp

Turn Your Business Trip into a Vacation

I’m headed to San Diego on business and the beach is calling to me.  Since the client is paying for the trip, I might as well add some vacation time and bring the family along.  So, what do I have to do to keep this a business trip, while sharing expenses with my family vacation?”   We hear questions like this over and over again. It seems like everyone is turning business travel into vacation time and that makes sense as we look for chances to save money and have new experiences. The IRS is vigilant about business expense tracking, so make sure you follow some simple rules and grab the sunscreen before you leave!

To claim business deductions associated with travel:

– Keep ALL receipts from your business trip.- Separate business expenses from personal expenses. Split the meal check between business and personal, book airline tickets separately, etc)- If your domestic trip is primarily a business trip, the price of travel to and from the destination and the business expenses are deductible.- If the trip is primarily pleasure, transportation to and from the destination is not deductible.- If you spend less on transportation by staying until Saturday, the IRS has indicated it will generally consider that extra stay time as a business expense.- Meals are only 50% deductible, even if they’re business meals.- If you bring your spouse or other guests, the costs they incur are not tax deductible, as they are not “necessary” for your business trip.- If traveling foreign and adding some pleasure time, a portion of the transportation cost is not deductible.  But, if you are staying less than a week, it is deductible.- If it feels doubtable that it is a business expense, it probably is not a business expense. Wherever your business travels take you, with a few minutes of planning and extra receipts, you can add vacationing as part of the fun.  Enjoy the beach. Surf’s up, dude!

Corporate Formalities

Corporate Formalities

In some cases, forming a corporation is the right tax planning strategy for our clients. As we help facilitate the incorporation of their business, sometimes the importance of complying with corporate law and formalities falls through the cracks. Remember, you are creating a new legal entity, giving birth to a new “being” of sorts. Legal and tax authorities expect full compliance with certain rules before they will recognize your new creation.

Corporate Formalities

Here is a quick, yet important list of rules to follow to ensure that your corporation retains its legal status.

1. Filing Articles of Incorporation

Completing the State’s formal application and filing organization documents is the first step to setting up a separate business entity, also known as a corporation. To some of you, this may be the only step you are aware of, but it’s only the beginning.

2. Obtaining a Federal Employer Identification number (EIN)

Now that you can obtain an EIN online, through the IRS website, this is probably the simplest step in the process. Simple, yet critical to making sure the new entity is recognized for tax purposes by the IRS.

3. Board Meetings

State law usually requires at least one board meeting be convened and documented per year. It may seem odd to hold a board meeting, if you are the only owner of your corporation, yet the requirement remains. It is a good idea to get some outside perspective on your business once in a while anyway, so if you are the only owner, maybe consider appointing a good friend or family member to be on your board of directors. Take them to lunch once a year and ask for their input on your business activities. Document the discussion in a notebook and you’ve had your first board meeting!

4. Appoint Corporate Officers and Directors

First item of business at your first board meeting is to officially appoint company officers and your board of directors. You may be the only officer (Chief Executive Officer, President, etc…) and you may only have one other person be on your board of directors. The quantity is not as important as the formality and documentation.

5. Approve Corporate Bylaws

Bylaws are the legal document that defines a corporation’s purpose, how it runs things, and who does what. The articles of organization contain the basic idea, but the Bylaws take it to the next level of detail. These would be “approved” by the board of directors.

6. Capitalize the Corporation

Putting money into the corporation, and strictly segregating personal funds from corporate funds, is a critical element to the entity maintaining legal status. If the company doesn’t have any money to operate with, it would be difficult to convince the IRS or court that it is fulfilling its purpose.

7. Issue Stock Certificates to Shareholders

You can find stock certificate templates all over the internet. These serve well, as do the ones a lawyer will provide you, to document who owns the stock of the corporation.

8. Keeping Separate Books

Keeping Separate Books

As mentioned earlier, keeping corporate funds separate from personal funds is critical to keeping the corporate veil in place. A separate bank account and clean set of accounting records showing the company’s activity, demonstrate the company’s independence from its owners.

In conclusion, meeting corporate formalities is crucial for ensuring that your business is recognized as a separate legal entity by the IRS and court systems. This recognition secures the tax and legal benefits you aim for, providing you with peace of mind. However, managing tax obligations and navigating legal requirements can be overwhelming. If you find yourself confused or in need of assistance, we encourage you to reach out to Vyde. Our services can simplify this process and help you focus on growing your business. Contact us today to learn more!

Accounting Mistakes Small Businesses Make

3 Accounting Mistakes Small Businesses Make

When you’re juggling the operations of a small business, each task takes its turn at being the number one priority. As you check an item off your to-do list—order supplies, take inventory, create an advertisement, etc.—you’re that much closer to small business success. Your list, however, doesn’t seem to get any shorter.

Many small business owners who do their own accounting and small business bookkeeping find that those tasks seem to hang out at the bottom of the list and never really get done. Unfortunately (and fortunately in some regard) accounting is an ongoing task that is never complete.

Here are three of the most common accounting mistakes small business owners make and ways to avoid them and keep your finances on track.

1. Not keeping close track of money coming in. It’s always great to get paid, but often times, the money goes out as quickly as it comes in. This is especially true for businesses who are just getting established. Keeping track of which invoices have been paid seems to be one of those things that is continually pushed to the bottom of the list with the thinking, “I’ll remember who paid me and mark it off later.” When this happens and tax season approaches, you’re left with a big long list of receivables and you’re not sure who paid what and when.

The solution: There is no easy answer to this. However, there are a few ways you can make keeping track of your receivables a little easier. One is to set aside time each day to account for money coming in. That sounds fairly elementary, but you’ll be surprised at how much more accurate your records will be if you have ten or twenty minutes each day to update.

Another way to keep better track of money coming in is to accept online payments, that way the internet does the tracking for you. Programs such as PayPal are easy to set up and maintain, and they crunch the numbers for you. If you are a running a larger, more established business, you may want to invest the money in updating your website to include a payment feature that is unique to your company.

Not keeping track of expenses

2. Not keeping track of expenses—no matter how small! On the flip side of keeping track of money coming in, you’ve got to manage your money going out. Since there are often a lot more little expenses than there are payments coming in, this is perhaps the most difficult aspect of accounting to stay disciplined on, both in business and in personal finances. It’s easy to think that $20 here and $40 there isn’t much in the big picture of your business, but those small expenses can really add up and surprise you each month. Keeping track of your small business expenses will save you a lot of headache come tax season and also help you gain a better understanding of your profitability.

The solution(s): Keep your receipts! If you don’t have a record of what you spent, how will you ever know what the mysterious $50 charge is to your bank account? Even if you don’t take the time to sit down and record every receipt as you make your purchase, keep ahold of them so you know which expense is which later on. Create a separate envelope in your car to put business receipts so that they are all together in one place when you’re ready to update your records.

Keep a separate card and bank account for your small business. No matter how small your business, this is never a bad idea. Don’t charge business expenses on your personal credit card, and vice versa. If nothing else, it keeps things simpler throughout the year and at the end of the year when gathering all of your financial information.

3. Not hiring a professional. If your business is small and money is tight, hiring one more person to do something for you that you think you can do yourself just doesn’t seem logical. The truth of the matter is, if you’re not an accountant, you probably need an accountant. While you will have another bill to pay, you’ll also save yourself a lot of stress and a lot of money down the road. You need to make sure you are taking advantage of all the deductions you can, staying up to date on ever-changing tax laws, and make certain you are bringing in more than you are sending out.

The solution: Hire an accountant. If you absolutely cannot afford one more monthly bill, at least hire an accountant to do your taxes for you rather than trying to do them yourself. Vyde offers a low, flat monthly fee to clients that include tax preparation and doesn’t increase as you go. Vyde is able to handle the accounting for many small businesses for as low as $50 per month. (We know we’re kind of biased on this one, but hey, we also know how quickly things can get out of hand.)

Not hiring a professional

FAQs:

1. How can I effectively track money coming into my small business?

  • Allocate daily time for updating records.
  • Utilize online payment systems like PayPal for automated tracking.
  • Consider website upgrades for custom payment features.

2. What’s the importance of tracking small expenses for my business?

  • Small expenses accumulate and impact profitability.
  • Keep receipts and maintain separate accounts for clarity
  • Enhance understanding of financial health and ease tax preparation.

3. Is it necessary to hire a professional accountant for my small business?

  • Hiring an accountant ensures adherence to tax laws and optimization of deductions.
  • Even with a tight budget, consider hiring for tax preparation at least.
  • Services like Vyde offer affordable monthly rates for comprehensive accounting support.

Your Questions, Mazuma’s Answers, Part 1: What business expenses are tax deductible?

 

You asked and Mazuma is delivering–we’re talking business expenses today!

What business expenses are tax deductible?

The broad answer to the often asked broad question comes from IRS Publication 535 “To be deductible, business expenses must be both ordinary and necessary. An ordinary ex­pense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or busi­ness. An expense does not have to be indispensable to be considered necessary.”
So as you think about your business, ask yourself, “What do I need to pay for, in order to produce the income my business generates?” Or another way you might word it, “What do I pay for that helps my business succeed in producing income?”
The areas that get a little “gray” and confusing are the things you pay for that benefit your business AND you personally. Such as food, entertainment, or travel. For example, did you have to buy that nice steak at Ruth’s Chris Steakhouse for your client in order to keep your business doors open? Probably not, but did it benefit your business? Yes, filling a client’s belly with melt in your mouth steak increases the chances that they will stick around a little longer. Because of the nature of this “business meal” expense, in that it benefits you personally to some degree, results in the IRS saying you can deduct 50% of the business expenses on your tax return.
Another example, what about your car? Certainly if you didn’t have means of transportation, your business would not be able to operate. Therefore, the amount of your car expenses you can write off depend on the portion of time it is being used for business, versus used for personal purposes. Again, the car benefits you personally at times, so the IRS will not let you take a deduction for all of the expenses. If you drive 10,000 miles during the year, and 8,000 are used for business meetings, and necessary business travel, then 80% of the total car expenses would be for business expenses and thus deductible on the tax return. Or, in order to meet the same objective, the IRS will allow you to deduct 56 cents for each business mile traveled during the year, instead of a percentage of actual expenses.
Here is a list of some examples of deductions that might be applicable to bloggers, but any business that incurs these costs could likely deduct them:
– Advertising and promotion
– Software
– Blog templates or designs
– Books, magazines, online subscriptions
– Camera
– Cell phone
– Cell phone services
– Chairs
– Computer accessories
– Computer purchase
– Computer software
– Conference fees
– Contest prizes
– Crafts for display on blog
– Credit card fees
– Data storage
– Design services
– Desks
– Domain name registration
– Education costs
– Electricity
– Entertainment related to business
– Envelopes
– File cabinets
– Folders
– Food during business meetings
– Giveaways
– Health insurance
– Home improvements
– Home maintenance and repairs
– Hotels
– Images or stock photos
– Internet access fees
– Internet hosting fees
– Paper
-Parking fees
– PayPal fees
– PO Box
– Podcasts
– Postage
– Printer
– Printer ink
– Professional associations
– Professional services (CPA, Attorney)
-Props
– Rent
– Router
– Search Engine Optimization
– Travel
-Utilities
– Wages
– Webcam
– Webinars
– Workshops
What constitutes a “home office”? How do I factor that into my taxes?
According to the IRS, a home office is only a “home office” if the space is used “regularly” and “exclusively” for business activities. This means the are of your home needs to be segregated from other common use areas, like in a room or area separated by furniture. Primarily business activity, such as meetings with customers or working on your computer, happens in this area. The area can’t double as a play room for your kids when you are not there. It can’t be where your kids come to do their school work when you are not there. It’s a designated space used for your business activity, and if an IRS agent walked into your house unannounced, you would be able to point the area out and demonstrate that it is office space and indeed part of your business expenses.
The IRS recently issued a “safe harbor” rule that allows you to take $5 per square foot of home office space, up to 300 square feet.
If you don’t use the safe harbor method, you take the office space square footage and divide it into the whole square footage of the house to get a ratio. Then you multiply that ratio by the total utilities, maintenance, mortgage interest or rent, expenses you paid during the year to get your home office deduction.
Tax Day

A Few Useless Bits of Information You Probably Didn’t Know About Tax Day

Tax day is finally here! For some of us, that means a sigh of relief. For others, it’s the most stressful day of the year. And still others really couldn’t care less because they filed their taxes long ago and have already purchased a new lawn mower with their return. Regardless of which category you fit into, we all file them, we all pay them, we all worry about them. We’re talking about taxes, baby! And now that April 15th has come, why not read up on a few bits of rather meaningless, but totally interesting facts about TAX DAY!

1. The Gettysburg address is 269 words, the Declaration of Independence is 1,337 words, and the Bible is only 773,000 words. However, the tax law has grown from 11,400 words in 1913 to 7 million words today.

2. Nearly 300,000 trees are cut down yearly to produce the paper for all the IRS forms and instructions.

3. The IRS sends out 8 billion pages of forms and instructions each year. Laid end to end, they would stretch 28 times around the earth.

4. The IRS employs 114,000 people-twice as many as the CIA and five times more than the FBI.

5. Even Albert Einstein—sometimes referred to as the smartest man in the world—wasn’t all that wild about taxes. He once said, “The hardest thing in the world to understand is the income tax.”

6. The average number of days a person worked to pay his or her 2009 taxes was 103. (As you can imagine, that number has increased by now.)

7. Excise taxes are also called “sin taxes.” They are taxes on alcohol, tobacco, and gambling.

8. Americans spend over $27.7 billion every year doing their taxes.

9. Wealthier Americans pay higher taxes than middle- or lower-income earners. The wealthiest 1% of the population earns 19% of income but pays 37% of the income tax. The top 10% pays 68% of the tab. The bottom 50% earns 13% of the income, but pays just 3% of the taxes. This does not include payroll taxes for Social Security and Medicare.

10. American taxpayers spend over $200 billion and 5.4 billion hours working to comply with federal taxes each year, more than it takes to produce every car, truck, and van in the United States.

And there you go! Now you can share all of your brilliant tax day knowledge with friends and neighbors who are, like us, glad that April 15th has come and gone yet again.

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Vyde is a licensed accounting firm (CPA) based in Provo, Utah, and members of the AICPA. We provide professional accounting services to businesses and individuals, with a focus on small business bookkeeping and taxes.

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