Mark J. Kohler is a CPA, Attorney, Radio Show host, author--and practitioner instructor for our Tax & Legal Strategies series of courses in our training program. Mark is a hands-on professional who helps students and clients build and protect wealth through wealth management strategies and business and tax remedies often overlooked in this challenging, ever-changing economic climate. His seminars have helped tens of thousands of individuals and small business owners navigate the maze of legal, regulatory and financial laws to greater success and wealth.
Mark’s invaluable advice can be found in his powerful first book, “Lawyers Are Liars: The Truth About Protecting Our Assets.” Mark’s much anticipated new book, “What Your CPA Isn’t Telling You – Life Changing Tax Strategies,” published by Entrepreneur, is a fictional story that brings tax planning alive. He also shares his knowledge and has created a loyal following of fans through his weekly radio show, which can be accessed here.
Mark is a proud father of four beautiful children and husband to his lovely wife, Jen. They reside in Orange County, California, where Mark practices his surfing skills and loves to exercise in the outdoors and play tennis. Mark will now teach you how to write-off things you may not have ever thought of. All this and more can be found in Mark's series of classes in our training program.
Technology and gadgets to help us succeed in business are an ever-increasing expense. Moreover, as small business owners utilize technology to do business nationwide, if not worldwide, these expenses (sometimes used personally), should be a deduction in their business. In fact, think about the following items and how you may use them in your business operations:
If you use any of these items to make money in your business, there’s a good chance they are a 100% deductible! Track all of these items, keep receipts and discuss them with your tax professional at the end of the year.
I always want to think of a business purposes for a technology item before I would ever purchase it. However, in the same breath I don’t want to throw good money at bad and buy something useless simply for the tax write-off.
“My wife would argue that my Phantom II Drone purchase was simply for personal use, but I assured her it was critical for footage from the sky of our office and enhanced our website with video and photos of our office building and company employees”
The Strategy for Your Cell Phone
In the Small Business Jobs Act of 2011, Congress removed the cell phone from the ‘listed property’ list. What this means is that you can write off 100% of your cell phone, correlated devices and service, as long as you meet certain criteria. Moreover, the IRS issued guidance with Notice 2011-72 clarifying the rules and Congress’s intent.
Essentially, this move by Congress and IRS was motivated by the fact that it was a constant fight in Court with taxpayers trying to prove what ‘percentage’ of their phone was business use versus personal use. In the end, the cell phone and service boiled down to a 100% deduction if you comply with the following criteria:
DON’T FORGET– If you have your family members legitimately working in the business and they need to use the cell phone for the operations of the business, as well as need to be accessible for business duties, there cell phone will be deductible as well!!
Is my Smart Watch Tax Deductible?
Under IRS Code, any expense that’s ordinary and necessary for that business is deductible, and would typically include related telecommunications equipment like a Bluetooth or headphones and mic for those important business calls. (IRC Section 162).
Many of a Smart Watch’s features (thing Apple Watch) are similar to a smartphone or Bluetooth device and can enhance your business sales and work productivity. Some of these features include calendar alerts for business appointments, business related texts, business calls, work email, social media for your business, Apple Pay for quick business purchases and immediate access to Apple’s business-friendly apps. Not to mention the added benefit of a built-in speaker and microphone that gives you hands-free ability to take that conference call while on the road (as well as look like Sean Connery from a 1970s James Bond movie).
Currently the IRS hasn’t taken a position on the new devices and with their current understaffed work load, it probably won’t be any time soon. Bottom line, at least some portion of your Apple Watch should be tax deductible, and it will depend on your business use of the functions.
NOW, to the CAR.
First and foremost, remember the auto deduction isn’t travel, but expenses for your car or truck. Also, remember this includes ALL your vehicles as long as they have some sort of business use, i.e. an RV, van, delivery truck or motorcycle used in your business (more articles to come)!
There are TWO MAIN OPTIONS to write off auto expenses: MILEAGE AND ACTUAL EXPENSES! You can learn about all this and more right here!
Mileage. On ANY of your vehicles you can use mileage as an EXCELLENT method to expense the business use of your vehicle. In 2016 your mileage deductions are as follows:
90 percent of our clients use mileage because it’s SIMPLE, EASY and a LARGE deduction, but keep in mind almost every situation with business owning taxpayers will vary and several MAJOR factors will impact the analysis. Consider the following:
If it is a NEW purchase, you may want to go with the Actual Method and get some bonus depreciation in the year you purchase, or maybe with a truck, van, SUV or RV you could even get more depreciation expense. However, most of our clients find the mileage deduction to be ultimately the best long-term decision when it comes to cars. It’s important you do your best to track your mileage.
Actual Expenses. The second method in deducting automobile expenses is by using the actual expenses for the vehicle. When you use this method you CANNOT use mileage. Essentially, you track your fuel, repairs, maintenance, insurance, tires and then also “depreciate” the vehicle or a portion of the lease payment if leasing.
The PROBLEM with actual is that depreciation expenses are drastically limited for cars, somewhat better in the year of purchase for a 6,000lb vehicle and then only really opens up for large trucks, vans and RVs in certain instances.
So this is where things get crazy. You have to consider issues such as the size of the vehicle, did you buy it this year (regardless of whether it was new or used), are you leasing, how much do you actually use it for business versus personal?… ALL OF THESE FACTORS play into your analysis as to what your deduction may be and if it is better than mileage.
Here are a few Special Circumstance Vehicles in this area of “actual expenses.”
SUV or Truck with Less than 6’ Bed. Both of these vehicles are treated the same. Yes, some of these trucks are more like an SUV when they have the two-row seating and a short bed. Thus, the IRS says they are treated the same for tax purposes.
Large Trucks and Vans. If the truck or van is over 6,000 pounds and the truck has a 6 foot bed or greater or is an enclosed delivery truck, then the $25,000 SUV limitation in the year of purchase for deprecation DOES NOT apply. In fact, you can deduct up to $500,000 in the year of purchase for the cost of the vehicle (limited to the business use percentage of the Truck or Van). Of course, there a number of other variables, but it is a common and often used deduction by small business owners. Moreover, any remaining basis unused with the 179 deduction, can then be depreciated in years to come in conjunction with the actual expenses of the vehicle.
Amazing Benefits of 179 Deduction. Bottom line, if you are in the business of buying a truck, Van, or RV, it’s critical you understand the 179 deduction and what it entails.
Leased Vehicles. Leasing is a phenomenal deduction, but not without its drawbacks. The tax benefits are phenomenal. You can again take all the actual expenses, including the lease payment (based on your business use percentage) and also save on the cost of a luxury car when monthly payments may be cheaper when leasing.
I suggest you create a spreadsheet to analyze the situation for your car. It doesn’t have to be complex either. Just think through your options AND realize that if you are going to spend THOUSANDS OF DOLLARS on this vehicle, it’s valuable to take a few minutes to analyze the various tax deduction options. Establish columns to compare mileage, to purchase, to lease, and then your rows can be different types of vehicles and different scenarios. You can do some initial research and calculations by simply pulling information off the web and then have your accountant/tax preparer fine tune your analysis!! It could save you A LOT of money to go through this analysis and process.
When it comes to these ever increasing expenses and strategies to make us more successful in our business, we should be looking for ways to deduct them. In fact, I argue that you should FIND reasons to use the technology you are already purchasing personal and convert them to a business use and asset in your business!! Make these items a deduction as you blow up your Social Media outlets and marketing plan. Don’t forget the little things my friends.
Mark Kohler teaches our Tax & Legal Strategies course as part of our Training Program, click here for more information. For more information on Mark, visit www.markjkohler.com.
The NEBDG Blog, by our Tax & Legal instructor Mark J. Kohler, is "The Real Estate Investment Conversation You Can Rely On." Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the books “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com. Let us know if there is a topic you would like to discuss!