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Some know how to maximize their tax situation already, but worth the read if you do not.
Free Meals - taxpayers used to be able to write off a business meal with a customer at which no business was discussed. This ended somewhat abruptly for many business people who had become accustomed to the perk. We all have to eat, afterall.
Tax rules (and it depends on where you are) state: an expense for any entertainment associated with business is deductible as long as it either precedes or follows a substantial and bona fide business discussion. By ensuring business is married to the entertainment, 'before', 'after', or 'during', taxpayers could eat (well technically) for free. Also, a business discussion during a meal can allow you to write off other business entertainment.
As an example, McSale takes McClient out to lunch. They play golf but no business is discussed that day. The next day, they meet again for lunch and discuss a new line of products. McSale can deduct the 2nd day lunch but gets no write off for the Monday lunch or for the greens fees because there was no business discussion before, during, or after that lunch. If McSale has deductible and nondeductible meals then he should ensure other entertainment happens before, during or after those deductible meals. The deducatible meals and the business discussion are therefore both eligible for write off.
The question being posed here is, 'wouldn't it be possible to promote coupling McSales to McClient and even generate the occasion?' If clubs promoted the notion more ostensibly, we could see a new wave of revenue yielding ideas - and a win-win-win for McSale, McClient and McClub.
Tax depreciation - In the general ledger, adjustments to an inventory asset account may be due to increases in value (appreciation - became more valuable for example) or decreases in value (depreciation - for wear and tear for exampe). Increases in the resale value of assets will appear as a positive difference between the latest resale value and the new one. Decreases in resale value will appear as a negative difference which will reduce the value in asset account.
The following varies depending on local tax rules but essentially depreciation is a portion of the cost that reflects the use of a fixed asset during an accounting period. A fixed asset is an item that has a useful life of over one year. An accounting period is usually a month, quarter, six months or a year. If you bought furniture for your rental property on March 1st, for $5000 and it was decided that the furniture had a useful life of four years, using a one month accounting period and the “straight-line" method of depreciation, the cost to be depreciated would be $5000 divided by 48 months, or $104.17 per month.
The information you need is:
1. The type of item (furniture).
2. The start date for the item (March 1st)
3. The cost ($5000).
4. Life expectancy (four years).
5. The method
Interestingly, the useful life for the inventory is important in deciding whether the net profit of the business is higher or lower. Inventory depreciation is a direct cost against the revenue. Book depreciation is based on the useful life of an item, and the local tax rules will indicate what is 'useful life'. If you are concerned with applying costs to generate net profit you will use book depreciation - higher the write-off, and the less tax. Small businesses that aren't always able to generate an exact value for net profit tend to lookup the published useful life for the asset and apply that.
Depreciation methods - (1). Straight line (2). Declining balance
What you need to know - (1). Depreciation start date (2). Recovery or salvage value (3). The life expectancy.
Straight line method is calculated as follows - the cost less estimated recovery value spread over the asset's life:
The Original Cost = 5,000
- Recovery Value = - 1,000 (4,000)
/ Divided by life expectanc y / 2 years (2,000)
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Depreciation = 2,000 per year
This shows that an item purchased for 5,000 has a life of 2 years and a recovery value of 1,000. The annual depreciation can be calculated at: (5,000 - 1,000) = 4,000 divided by 2 = 2,000.
Declining balance method is calculated as follows - uses a 'depreciation factor' to reveal a greater deduction during the earlier years and less during the later years. The effect also causes a lower income tax payable in the earlier years which is why its popular.
Thats two more ideas worth taking time out to study. Good luck!
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