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Depreciation is a deduction from income tax that lets you recover the cost of property. Click through to see how the IRS allows for the wear and tear, deterioration or even obsolescence of items.

Depreciation of tangible property — buildings, machinery, vehicles, furniture and equipment, even cell phones — as well as intangible property, such as patents, copyrights and computer software, in some situations, is allowed by the IRS and can be used to offset income from your business. Does your property meet these requirements?

• You own the property.
• Or you lease the property and make capital improvements.
• You use the property in business and for personal purposes. (In this case, you can only deduct depreciation for business use of the property.)
• The property must have a determinable useful life of more than one year.

However, not everything can be depreciated. For example, land is off the table: It doesn’t get used up and is not subject to wear and tear. Inventory is not depreciated either.

You depreciate an asset over time. When you place property in service to use in your business or trade or to produce income, that’s when depreciation begins. However, property stops being depreciable when you’ve fully recovered the property’s cost or other basis or when you retire it from service — whichever happens first.

There are different schedules for different items: For computers, office equipment, cars, trucks and appliances, the recovery time is up to five years; office furniture and fixtures work on a seven-year schedule. Residential rental properties can be recovered over 27.5 years, while commercial buildings and nonresidential properties can be recovered over 39 years, depending on the year you acquired them.

You need to know the initial cost of the asset and how long you can depreciate it for. There are three depreciation methods summarized below. Particular situations will dictate which ones are most appropriate for you.

• Straight line — depreciate the property an equal amount each year over its useful life.
• Accelerated method — take larger depreciation deductions in the first few years of the property’s useful life and smaller deductions later on.
• Section 179 deduction — deduct the entire cost of the asset the year it’s acquired.

And to ensure that you properly depreciate property, you need to consider:

• The depreciation method for the property.
• The class life of the asset.
• Whether the property is Listed Property (as defined by the IRS)
• Whether you’ve elected to expense any portion of the asset.
• Whether you qualify for any bonus first-year depreciation.
• The depreciable basis of the property.

Use depreciation to decrease your tax burden — you are lowering your overall taxable income. Depreciation doesn’t affect your company’s cash flow or its actual cash balance — it’s a noncash expense. However, before making any decisions, keep in mind that this is just an introduction to a very complex topic, and the provisions and methods described here are not applicable in every situation. Give us a call to discuss them further.

We invite you to request a consultation online now or call us at 702-658-9535 to learn more about how we can help you save money on your taxes.

Any business with employees must withhold money from its employees’ paychecks for income and employment taxes, including Social Security and Medicare taxes (known as Federal Insurance Contributions Act taxes, or FICA), and forward that money to the government. A business that knowingly or unknowingly fails to remit these withheld taxes in a timely manner will find itself in trouble with the IRS.

The IRS may levy a penalty, known as the trust fund recovery penalty, on individuals classified as “responsible persons.” The penalty is equal to 100% of the unpaid federal income and FICA taxes withheld from employees’ pay.

Who’s a Responsible Person?

Any person who is responsible for collecting, accounting for, and paying over withheld taxes and who willfully fails to remit those taxes to the IRS is a responsible person who can be liable for the trust fund recovery penalty. A company’s officers and employees in charge of accounting functions could fall into this category. However, the IRS will take the facts and circumstances of each individual case into consideration.

The IRS states that a responsible person may be:

• An officer or an employee of a corporation
• A member or employee of a partnership
• A corporate director or shareholder
• Another person with authority and control over funds to direct their disbursement
• Another corporation or third-party payer
• Payroll service providers
• The IRS will target any person who has significant influence over whether certain bills or creditors should be paid or is responsible for day-to-day financial management.

Working With the IRS

If your responsibilities make you a “responsible person,” then you must make certain that all payroll taxes are being correctly withheld and remitted in a timely manner. Talk to a tax advisor if you need to know more about the requirements.

Give us a call at 702-515-4025 today to learn more, or request a free initial consultation online.

Do you drive your car for business purposes? The costs of operating and maintaining your vehicle are potentially deductible. Here are some guidelines.

Two Methods

The IRS provides two basic methods for computing deductions for the business use of an automobile.

Actual expense method. With the actual expense method, you deduct the actual costs of operation, including licenses, registration fees, garage rent, repairs, gas, oil, tolls, and insurance. Additionally, you may claim depreciation deductions (and/or elect expensing under Section 179). If the car is leased, you deduct your lease payments rather than depreciation. (Certain limits apply.)

Standard mileage rate. Alternatively, you may choose to use an IRS-provided standard mileage rate. With this method, you multiply the number of business miles you drive during the year by the applicable rate (58¢ per mile for 2019). When you use the standard mileage rate, you don’t separately deduct expenses such as gasoline, oil, insurance, repairs and maintenance, depreciation, or lease payments. However, business-related parking fees and tolls are separately deductible.

Which Should You Use?

Generally, you will want to use the method that produces the largest deduction. If your vehicle is costly to own and operate, the actual expense method may be more advantageous. Conversely, if your vehicle is fuel efficient and/or inexpensive, the simpler standard mileage rate method may be a better choice.

With either method, the IRS requires that you keep records that substantiate your business use of the car: the date, place, business purpose, and number of miles you travel. When you use the actual expense method, you’ll also need records substantiating the amount and date of car-related expenditures. You can avoid having to retain receipts by using the standard mileage rate.

If you decide to use the standard mileage rate for a car you own, you may switch to the actual expense method in a later year. However, you won’t be able to claim accelerated depreciation deductions for the car. With a leased car, you have less flexibility. If you choose the standard mileage rate the first year, you must use it for the entire lease period.

Personal and Business Use

If you use your car for both personal and business purposes, you must keep track of your mileage for each purpose. To figure the percentage of qualified business use, you divide the business mileage by the total mileage driven. Then multiply that percentage by your total expenses.

We invite you to request a consultation online now or call J W Enterprises, LLC at 702-515-4025 to learn more about how we can help you save money on your taxes.