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Intangible Assets: How Must The Costs Incurred Be Capitalized?

These days, most businesses have some intangible assets. The tax treatment of these assets can be complex.

What makes intangibles so complicated?

IRS regulations require the capitalization of costs to:

Acquire or create an intangible asset,
Create or enhance a separate, distinct intangible asset,
Create or enhance a “future benefit” identified in IRS guidance as capitalizable, or
“Facilitate” the acquisition or creation of an intangible asset.

Capitalized costs can’t be deducted in the year paid or incurred. If they’re deductible at all, they must be ratably deducted over the life of the asset (or, for some assets, over periods specified by the tax code or under regulations). However, capitalization generally isn’t required for costs not exceeding $5,000 and for amounts paid to create or facilitate the creation of any right or benefit that doesn’t extend beyond the earlier of 1) 12 months after the first date on which the taxpayer realizes the right or benefit or 2) the end of the tax year following the tax year in which the payment is made.

What’s an intangible?

The term “intangibles” covers many items. It may not always be simple to determine whether an intangible asset or benefit has […]

By Linkenheimer LLP|2022-12-12T21:36:20+00:00December 12th, 2022|irs, small business|0 Comments

Choosing A Retirement Plan For Your Small Business

Most growing small businesses reach a point where the owner looks around at the leadership team and says, “It’s time. We need to offer employees a retirement plan.”

Often, this happens when the company is financially stable enough to administer a retirement plan and make substantive contributions. Other times it occurs when the business grows weary of losing good job candidates because of a less-than-impressive benefits package.

Whatever the reason, if you don’t have a retirement plan and see one in your immediate future, you’ll want to carefully select the one that will work best for your company and its employees. Here are some basics about three of the most tried-and-true plans.

401(k) plans offer flexibility

Available to any employer with one or more employees, a 401(k) plan allows employees to contribute to individual accounts. Contributions to a traditional 401(k) are made pretax, reducing taxable income, but distributions are taxable.

Both employees and employers can contribute. For 2023, employees can contribute up to $22,500 (up from $20,500 in 2022). Participants who are age 50 or older by the end of the year can make an additional “catch-up” contribution of $7,500 (up from $6,500 in 2022). Within limits, employers […]

By Linkenheimer LLP|2022-12-08T16:37:29+00:00December 8th, 2022|retirement, small business|0 Comments

Making Withdrawals From Your Closely Held Corporation That Aren’t Taxed As Dividends

Do you want to withdraw cash from your closely held corporation at a minimum tax cost? The simplest way is to distribute cash as a dividend. However, a dividend distribution isn’t tax-efficient since it’s taxable to you to the extent of your corporation’s “earnings and profits.” It’s also not deductible by the corporation.

Five alternatives

Fortunately, there are several alternative methods that may allow you to withdraw cash from a corporation while avoiding dividend treatment. Here are five areas where you may want to take action:

1. Capital repayments. To the extent that you’ve capitalized the corporation with debt, including amounts you’ve advanced to the business, the corporation can repay the debt without the repayment being treated as a dividend. Additionally, interest paid on the debt can be deducted by the corporation. This assumes that the debt has been properly documented with terms that characterize debt and that the corporation doesn’t have an excessively high debt-to-equity ratio. […]

By Linkenheimer LLP|2022-02-14T21:41:31+00:00February 14th, 2022|business, small business|0 Comments

Important Tax Aspects of Operating Your Business as a Sole Proprietor

If you’re in business for yourself as a sole proprietor, or you’re planning to start a business, you need to know about the tax aspects of your venture. Here are eight important issues to consider:

1. You report income and expenses on Schedule C of Form 1040. The net income is taxable to you regardless of whether you withdraw cash from the business. Your business expenses are deductible against gross income and not as itemized deductions. If you have any losses, they’re generally deductible against your other income, subject to special rules relating to hobby losses, passive activity losses and losses in activities in which you weren’t “at risk.”

2. You may be eligible for the pass-through deduction. To the extent your business generates qualified business income, you’re eligible to take the 20% pass-through deduction, subject to various limitations. The deduction is taken “below the line,” so it reduces taxable income, rather than being taken “above the line” […]

By Linkenheimer LLP|2022-02-07T21:13:08+00:00February 7th, 2022|business, deduction, deductions, individuals, small business|0 Comments

Small Businesses: There Still May Be Time To Cut Your 2021 Taxes

Don’t let the holiday rush keep you from considering some important steps to reduce your 2021 tax liability. You still have time to execute a few strategies.

Purchase assets

Thinking about buying new or used equipment, machinery or office equipment in the new year? Buy them and place them in service by December 31, and you can deduct 100% of the cost as bonus depreciation. Contact us for details on the 100% bonus depreciation break and exactly what types of assets qualify.

Bonus depreciation is also available for certain building improvements. Before the 2017 Tax Cuts and Jobs Act (TCJA), bonus depreciation was available for two types of real property: land improvements other than buildings (for example fencing and parking lots), and “qualified improvement property,” a broad category of internal improvements made to nonresidential buildings after the buildings are placed in service. The TCJA inadvertently eliminated bonus depreciation for qualified improvement property. However, the 2020 CARES Act made a retroactive technical correction to the […]

By Linkenheimer LLP|2021-12-07T19:10:08+00:00December 7th, 2021|business, deductions, small business, tax deductions, vehicles|0 Comments