Tag: depreciation

Posted on by Jan Roberg

Filing Your St. Louis County Personal Property Tax Declaration

SAINT LOUIS COUNTY MISSOURI

ASSESSOR’S OFFICE

41 South Central Avenue

St. Louis, Missouri 63105-1777

314-615-1500

 

Do you own a small business in Missouri?  Are you filing a Schedule C with your 1040 tax return?  Or do you have a partnership or corporation?  If yes, then you’re supposed to pay personal property taxes on your equipment.

 

I keep getting asked:  Do I have to pay personal property taxes?  Do I have to fill out that form?  If you own a small business, the answer is yes.

 

I used to think that if you didn’t have any assets, you didn’t have to do a business personal property declaration.  But—even if you have absolutely no business assets at all, you’re going to have a minimum assessed value of business property for tax purposes of $200.  That’s not what the tax is, that’s an assessed value of your property.

 

So how does that assessment thing work?  I’ll use my own business as an example.  In 2013, I bought new computer equipment.  The total cost was around $3,000.  Computers count as “5-year” property, because that’s how long it takes to depreciate a computer on your tax return.  (Office furniture is an example of a 7-year property.)  Now I’m writing off the whole cost of the computer on my tax return (as a Section 179 expense)—but it’s still considered a 5 year property for depreciation purposes and for the personal property tax declaration.

 

In the personal property tax declaration form, I would put $3000 for year 2013 in schedule 9 for 5-year property.  (If your brain just exploded reading that, relax, I’m going to give you the easy cheater way to do the form in a little bit.)

 

Then that amount (in my case $3,000) is multiplied by .85 and then multiplied by .3333 so my assessed value is $849.92.   That’s not the tax I’m going to pay, that’s just the assessment of the value of what my business owns.  (3000 x .85 x .3333 = 849.915)

 

Last year, the tax rate was 8.052.  I only had $230 of assessed value so my bill was only $18.52 this past December.  Because of my new equipment, my bill will be higher this year.  But your bill is going to be close to 8% of what the assessed value of your equipment it.  As your equipment ages, the assessment will go down but the assessment will never go below $200.

 

So what’s the cheater trick for filling out the form?  Grab your tax return and pull out the Federal depreciation schedule.  It’s going to have a list of your company assets, what they cost, and whether they are a 5-year, 7-year, or a 10-year property, and what year you bought them.  If you have company assets like computers, equipment, or vehicles, then you should have a depreciation schedule to go with your tax return.  I know that some companies won’t give that list to their clients to force them to come back every year.  If you’re not getting that list—you have a right to ask for it.  (And move to a preparer that gives you all the information you need for your taxes.)

 

If you didn’t get your personal property tax declaration statement in the mail, here’s a link so you can have the form:

http://www.stlouisco.com/Portals/8/docs/document%20library/Assessor/pp/BusAndMfgDecForm_WebCopy.pdf

 

You need to have it signed and filed by March 31st.

 

St. Louis County has started a new Online Personal Property Declaration that will be available from February 1 – April 30th.  http://revenue.stlouisco.com/Collection/ppInfo/ppDec.aspx It’s a good option for people who missed the March 31 deadline and for people who are just more comfortable with on-line services.  If you start using the online service, you’ll be able to access your previously filed returns, making it a whole lot easier to fill out that form in the future!

 

If you’ve been forgetting to file your St Louis County personal property taxes, 2014 is a good year to come clean and start filing.

Posted on by Jan Roberg

Depreciating a Bitch

Dog breeders - You are entitled to certain deductions that many others are not qualified for. Get the deductions you deserve and maximize your tax benefits. Photo by Mike Bitzenhofer at Flickr.com

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First and foremost, we’re talking about dogs here.

I’m often asked by dog breeders about how to write off the cost of purchasing a dog for breeding purposes.   If you are planning on going into the business of breeding dogs, then your dogs are livestock and would fall into the same rules as farm animals.

 

Depreciation for a dog begins when the dog reaches maturity.  If you buy a puppy for breeding, depreciation begins when the dog can be bred.  If you purchase a dog for working, (such as herding or security) depreciation begins when the dog can actually be worked.

 

You cannot buy a puppy and write off the entire cost because you say that you intend to breed it.  You must actually be breeding the dog to claim an expense.

 

How long do you depreciate a dog for?

Because dogs are not specifically listed in the IRS depreciation tables, the timeline on depreciating a dog is seven years.

 

Can I just write off the whole cost the year I start breeding?

Yes, that would be called a Section 179 Expense deduction.  But there’s a catch with claiming a Section 179 expense deduction that most people don’t know or forget about.  Remember, dogs are depreciated over seven years.  If you write off the entire cost of the dog the first year of breeding, but then you quit breeding your dog—you’re required to “recapture” any remaining depreciation.

 

What does recapture mean?

Well, let’s say your dog cost $2,000 and you claimed the full expense the year you start breeding her.  After two years, you decide it’s not worth it and you have her spayed.  You only got two years of breeding from the dog, so you have 5 years of depreciation that you have to reclaim.

 

If you used the MACRS depreciation schedule, you would have claimed $286 the first year and $486 the second year for depreciation.  That makes a total of $772.  To reclaim the Section 179 expense, that means that you would subtract the depreciation you could have claimed from the $2000 that you wrote off before and you’d have to claim the $1,228 left as income.

 

Yes, it does stink, but that’s the rule.  And remember—a dog breeding business is a more likely candidate for an audit than most other businesses so you’re going to want to maintain your books nice and tight.

 

A few other points about dogs as business property:

  1. If you buy dogs to resell, that’s considered inventory and you don’t expense them until you actually sell them.

    2.  

  2. If you buy a dog for breeding, and then sell the dog later, you have to reclaim the depreciation as ordinary income.  Example:  buy dog for $2000, claim section 179 expense of $2000, sell dog for $3000, you would claim $3000 as ordinary income.

    3.  

  3. You may purchase a breeding dog and choose not to depreciate the dog, just keep the dog as an investment.  When you sell the dog, the profit is taxed at capital gains rate instead of ordinary income (which is a lower tax rate.)  Example:  dog costs $2000, sold for $3,000, only $1,000 of income is realized and would be taxed at lower capital gain rate.

    4.  

There’s a lot here to think about.  Don’t go trying to claim the cost of your dog on your tax return unless you truly are in a dog business.  Expensing a dog is going to be a red flag for an audit—so dot your “I”s and cross your “T”s and make sure you’ve done all your homework.

 

If you do plan on depreciating your dog, click here to get my handy dog depreciation schedule to help you figure your expenses.

Posted on by Jan Roberg

5 Things You Probably Didn’t Know About Santa’s Tax Return

 

5 Things You Didn't Know About Santa's Tax Return

 

What about Santa’s taxes?     Here’s a few things I bet you haven’t thought about before.

1.  Given that Santa travels about 75 and a half million miles a year (mostly on December 24th) his mileage deduction (at 54.5 cents per mile in 2018) is $41,147,500.

 

2.  Reindeer are depreciated over a period of 7 years.

 

3.  North Pole elves are considered employees and receive W-2s.   Elves outside of the North Pole are considered contract labor and receive 1099s.   (There are people who work as “elves” outside the North Pole that work for other organizations–like at the mall, who receive W2s, but they are not real elves and are not employed by Santa himself.)

 

4.  Because the elves live at the North Pole for the convenience of their employer, and since living at the North Pole is a condition of employment, elf lodging is not taxable to the elves.

 

5.  Santa doesn’t actually make any money from his toy distribution operation.  Most of Santa’s income comes from royalties from his guest appearances in movies, books, and television commercials.

 

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Footnotes:

1.  Santa’s distance traveled:  The Physics of Santa,  http://www.daclarke.org/Humour/santa.html

 

2.  Reindeer depreciation:  IRS publication 225 Farmer’s Tax Guide

 

3.  Elves are employees:  Common Law Rules of employment, http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Independent-Contractor-Self-Employed-or-Employee

 

4.  Elf housing:  IRS publication 15B  Employer’s Tax Guide to Fringe Benefits

 

5.  Santa’s income from royalties:   https://en.wikipedia.org/wiki/Royalty_payment

Posted on by Jan Roberg

Why Doesn’t My QuickBooks Income Match the Income on my Tax Return?

(Explaining the Schedule M1 for Dummies)

Photo by Jenny Kaczorowski at Flickr.com

 

So you’re a small business owner and you just got your business return back. You take a look at the tax return and it says your net income is $20,000 but you gave your QuickBooks profit and loss statement to your account and it said that your income was $15,000. What happened? Maybe instead it was the other way and your tax income was lower. What’s up with that?

 

Well first thing, if you have an accountant doing your taxes, she should be able to explain exactly what’s going on. (If she can’t, it’s time for a new accountant.) But the simple answer is right on your tax return. It’s called the Schedule M1. If you’ve got a corporation, it will be on page 5 of the tax return. If you’ve got a partnership, it’s on page 4, right underneath the balance sheet.

 

Schedule M1 is the part of the tax return that explains what’s different between the books that you handed your accountant and the tax return that you’re giving to the IRS. If you had less than $250,000 in revenue, you don’t need to submit an M1 to the IRS (tax programs will leave them blank), but it’s still a good idea to complete those schedules to make sure your books are straight.

 

So what are the most common discrepancies between tax and book income? That’s easy; you’ll find it in the meals and entertainment category and depreciation. If you don’t have expenses in either of these categories, most likely your tax income and book income are going to match up just fine. But if you do have meals and entertainment or depreciation, they almost always affect your tax income.

 

Let me explain the meals and entertainment first. That’s the category where the IRS only allows you to claim a 50% deduction on there. So let’s say you spent $3,000 in meals and entertainment. On your tax return, you’d only get to expense $1,500. That means there’s another $1500 expense that’s recorded on your books that’s not on your tax return.  So, in this example your tax net income is higher than your book income.

 

Depreciation usually goes the other way.  Often small businesses ignore depreciation.  Or they run depreciation through their software program, but it’s not the same depreciation schedule that’s used for taxes.  For example, using the straight line method for book purposes but using the Modified Accelerated Cost Recovery System (MACRS) for tax purposes.  Usually that makes for a tax adjustment the other way.

 

Let’s look at an example so you can see what the Schedule M-1 looks like and how it affects your net income.  In the example below, the business owner showed $20,000 of net income on his QuickBooks profit and loss statement.  He had $2,600 of travel and entertainment expenses, so half of that get’s added to his taxable income.  He also had $4,500 of depreciation that showed up on his tax return, but he didn’t include in his QuickBooks, so that reduces his taxable income.

 

$20,000 (net income from the profit and loss statement) + $1300 (half of the meal and entertainment expense) – $4500 (the depreciation expense) = $16,800 (the net income shown on the tax return)

 

 

There are lots of other items that can affect the Schedule M1.  These two are so common that many tax programs automatically plug them in for you.  Another common item that might show up on the M-1 is when you’ve got an expense on your profit and loss statement that your accountant says, “No, you can’t count that on your tax return.”    (We don’t do that to be mean, we just don’t look that good in prison orange.)

 

Why you want the Schedule M-1.  Let’s say you file your business tax return and you get audited by the IRS.  The first thing they do is ask for your profit and loss statement and your bank records.    The examiner takes one look at your P&L and sees you have net income of $20,000—but you’re tax return says you made $16,800.  He’s licking his chops because he gets to assess you additional taxes and he hasn’t even opened your bank statement yet.  Aha!  You’ve got your M1 showing the depreciation.  Your butt is covered.

 

Now in real life, the IRS examiner would notice the depreciation eventually anyway.  But sometimes there will be items in the M-1 that aren’t so obvious.  That’s why you want this reconciliation, because by the time the IRS gets around to auditing your books, you’ll forget the little adjustments—unless they’re tracked.  M-1 keeps you neat and tidy.

Posted on by Jan Roberg

Can I Write Off My New iPad as a Business Expense? (A lesson in listed property)

New iPad

Photo by John.Karakatsanis on Flickr.com

Recently someone asked me if he could write off his iPad as a business expense.  Now for that guy—the answer was a resounding, “Yes!”  But I knew all of the circumstances and I knew he had an audit proof reason for the iPad.  For most people though—deducting the iPad purchase is a resounding, “Maybe.”

 

Here’s why—

 

First, you need to consider if the purchase of your iPad would be an “ordinary and necessary” expense for your business?  Now in the case of my iPad guy, he’s a computer programmer and he had been hired to develop some apps specifically for the iPad.  Although he felt confident that he could develop the apps without an iPad, he thought it might be useful to own one.  (Okay, duh!  I think he just wanted me to okay his iPad purchase to his wife.)

 

But you don’t need to be a programmer to justify the expense; there are plenty of really good uses of an iPad for your business.  I could just set up a video camera and let my husband do a 20 minute infomercial about why every business person in America needs an iPad.  He actually bought his for fun and found that it’s great for his business; he uses it all the time.   I think many businesses would pass the “ordinary and necessary” requirements for the write off of a tool like that.

 

Second, you need to consider how much you’d use it for business.  This is really important because the iPad counts as “listed property.”  Listed property is the fun stuff.  Cameras, computers, and stereo equipment—basically the fun stuff that you can get at Best Buy.  Cars are also considered to be listed property.

 

So here’s the deal—if you buy business equipment that is not listed property—like a file cabinet, and then you quit using it—the IRS doesn’t really care too much about that.  But if you buy some fancy video equipment “for business” and then don’t use if for business—well the IRS has some ideas about that and those ideas will all cost you some money!  Basically, anytime your business use of listed property falls below 50%—then you’re going to have to “recapture” (that means pay tax) on the deduction that you took earlier on your next tax return.  Yuck!

 

Let’s take that iPad for example.  A new iPad costs $500.  You buy it this year and you take the Section 179 deduction for it and write off the whole $500 as a business expense for your sole proprietorship.  (A Section 179 deduction is what you call it when you buy a piece of equipment and expense the whole thing instead of depreciating it.  Depreciation is where you buy something expensive and write off the expense over a couple of years—it depends upon the equipment to determine how long the write off is for.)

 

That’s all fine and dandy if you use the iPad 100% for business and you keep using it for business.  But let’s say you buy it, write it off, and then next year you give it to your daughter for school.  Now it’s not a business tool anymore.  If you do that—the IRS will make you “recapture” the unused depreciation.   So next year, you’d have $400 of extra income to pay tax on.  (Because they’d let you keep the $100 expense deduction for the year you used the iPad for business.)

 

Now I realize that I’m oversimplifying things—but that’s the basic gist of it.  It’s okay to buy cool stuff for your business.  It’s okay to write it off.  But if you’re not going to be using it for the full term of its use (most things are 5 years) then you might want to think twice before writing off the whole thing.