expensing - Linkenheimer LLP CPAs & Advisors

Starting a Business? How Expenses Will Be Treated On Your Tax Return

Government officials saw a large increase in the number of new businesses launched during the COVID-19 pandemic. And the U.S. Census Bureau reports that business applications are still increasing slightly (up 0.4% from April 2023 to May 2023). The Bureau measures this by tracking the number of businesses applying for Employer Identification Numbers.

If you’re one of the entrepreneurs, you may not know that many of the expenses incurred by start-ups can’t be currently deducted on your tax return. You should be aware that the way you handle some of your initial expenses can make a large difference in your federal tax bill.

Handling expenses

If you’re starting or planning to launch a new business, here are three rules to keep in mind:

Start-up costs include those incurred or paid while creating an active trade or business — or investigating the creation or acquisition of one.
Under the tax code, taxpayers can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs in the year the business begins. As you know, $5,000 doesn’t go very far these days! And the $5,000 deduction is reduced dollar-for-dollar by the amount by which your […]

By Linkenheimer LLP|2023-07-03T17:20:36+00:00July 3rd, 2023|business, deduction, expensing|0 Comments

Keep These DOs and DON’Ts in Mind When Deducting Business Meal and Vehicle Expenses

If you’re claiming deductions for business meals or auto expenses, expect the IRS to closely review them. In some cases, taxpayers have incomplete documentation or try to create records months (or years) later. In doing so, they fail to meet the strict substantiation requirements set forth under tax law. Tax auditors are adept at rooting out inconsistencies, omissions and errors in taxpayers’ records, as illustrated by one recent U.S. Tax Court case.

Facts of the case

In the case, a married couple claimed $13,596 in car and truck expenses, supported only by mileage logs that weren’t kept contemporaneously and were made using estimates rather than odometer readings. The court disallowed the entire deduction, stating that “subsequently prepared mileage records do not have the same high degree of credibility as those made at or near the time the vehicle was used and supported by documentary evidence.”

The court noted that it appeared the taxpayers attempted to deduct their commuting costs. […]

By Linkenheimer LLP|2023-06-02T13:14:09+00:00June 2nd, 2023|expensing, mileage|0 Comments

Notification Of Change To Tax Accounting For Research Expenses

RESEARCH EXPENSES

Under the Tax Cuts and Jobs Act (TCJA), for taxable years beginning after December 31, 2021, specified research or experimental expenditures must be capitalized and amortized over five years (15 years for expenditures which are attributable to research conducted outside the United States). Under the TCJA provision, all research expenses are amortized beginning with the midpoint of the taxable year in which such expenses are paid or incurred.

Defining research and experimental expenditures

For taxable years beginning before January 1, 2022, it didn’t matter much whether a taxpayer classified an expenditure as an ordinary and necessary business expense or as research and experimental (R&E) expenditures because either way, the taxpayer could deduct the full amount in the year it was incurred.

But, with the TCJA’s requirement that research and experimental expenses must be amortized and capitalized for taxable years beginning after December 31, 2021, the classification becomes very important.

The IRS defines research and experimental expenditures as research and development costs in the experimental or laboratory sense, which include all costs that are incident to the development or improvement of a product.

The regulations do not provide an exhaustive list of what constitutes research and experimental expenditures. However, the regulations […]

By Linkenheimer LLP|2022-12-28T18:12:25+00:00December 28th, 2022|expensing, research credit, tcja|0 Comments

Vehicle Expenses: Can Individual Taxpayers Deduct Them?

It’s not just businesses that can deduct vehicle-related expenses on their tax returns. Individuals also can deduct them in certain circumstances. Unfortunately, under current law, you may not be able to deduct as much as you could years ago.

For years prior to 2018, miles driven for business, moving, medical and charitable purposes were potentially deductible. For 2018 through 2025, business and moving miles are deductible only in much more limited circumstances. The changes were a result of the Tax Cuts and Jobs Act (TCJA), which could also affect your tax benefit from medical and charitable miles.

Fortunately, if you’re eligible to deduct driving costs, the IRS just increased the standard amounts for the second half of 2022 due to the high price of gas.

Current vs. past limits

Before 2018, if you were an employee, you potentially could deduct business mileage not reimbursed by your employer as a miscellaneous itemized deduction. But the deduction was subject to a 2% of adjusted gross income (AGI) floor, which meant that mileage was deductible only to the extent that your total miscellaneous itemized deductions for the year exceeded 2% of your AGI. However, for 2018 through 2025, you […]

By Linkenheimer LLP|2022-06-28T23:34:10+00:00June 28th, 2022|deduction, expensing, New Tax Laws, tcja|0 Comments

Caring For An Elderly Relative? You May Be Eligible For Tax Breaks

Taking care of an elderly parent or grandparent may provide more than just personal satisfaction. You could also be eligible for tax breaks. Here’s a rundown of some of them.

Medical expenses. If the individual qualifies as your “medical dependent,” and you itemize deductions on your tax return, you can include any medical expenses you incur for the individual along with your own when determining your medical deduction. The test for determining whether an individual qualifies as your “medical dependent” is less stringent than that used to determine whether an individual is your “dependent,” which is discussed below. In general, an individual qualifies as a medical dependent if you provide over 50% of his or her support, including medical costs.

However, bear in mind that medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income (AGI).

The costs of qualified long-term care services required by a chronically ill individual and eligible long-term care insurance premiums are included in the definition of deductible medical expenses. There’s an annual cap on the amount of premiums that can be deducted. The cap is based on age, going as high as […]

By Linkenheimer LLP|2022-05-11T21:47:27+00:00May 11th, 2022|expensing, medical deduction, medical expense|0 Comments