CPA Blog

Tangible property safe harbors help maximize deductions

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Published: Monday, 06 March 2017 08:24

Written by Juan Andrade, CPA

If last year your business made repairs to tangible property, such as buildings, machinery, equipment or vehicles, you may be eligible for a valuable deduction on your 2016 income tax return. But you must make sure they were truly “repairs,” and not actually “improvements.”

Why? Costs incurred to improve tangible property must be depreciated over a period of years. But costs incurred on incidental repairs and maintenance can be expensed and immediately deducted.

What’s an “improvement”?

In general, a cost that results in an improvement to a building structure or any of its building systems (for example, the plumbing or electrical system) or to other tangible property must be capitalized. An improvement occurs if there was a betterment, restoration or adaptation of the unit of property.

Under the “betterment test,” you generally must capitalize amounts paid for work that is reasonably expected to materially increase the productivity, efficiency, strength, quality or output of a unit of property or that is a material addition to a unit of property.

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Streamline your inventory management to boost cash flow

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Published: Monday, 27 February 2017 10:30

Written by Phillip Strickler, CPA.CITP

Inefficient inventory management is one of the biggest cash drains on many businesses, depriving them of valuable working capital. Excess inventory is literally cash wasting away in your warehouse or on your shelves. So every company needs to do everything it can to minimize its inventory investment.

Manufacturing tips

If you’re a manufacturer, one of the best ways to do this is by implementing just-in-time (JIT) inventory management. It involves having raw materials delivered just as they’re needed, rather than weeks in advance.

Automation plays a big role in JIT. Back-office inventory and ordering software, combined with bar-code scanners and other software tools, is widely available today and can give even smaller companies a leg up on the competition. Bear in mind, however, that JIT systems require greater collaboration with your customers, suppliers and employees. And they’ll likely bring substantial upfront equipment costs.

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Deduct all of the mileage you’re entitled to — but not more

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Published: Monday, 27 February 2017 09:06

Written by Phillip Strickler, CPA.CITP

Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. But you might also be able to deduct miles driven for other purposes, including medical, moving and charitable purposes.

What are the deduction rates?

The rates vary depending on the purpose and the year:

Business: 54 cents (2016), 53.5 cents (2017)

Medical: 19 cents (2016), 17 cents (2017)

Moving: 19 cents (2016), 17 cents (2017)

Charitable: 14 cents (2016 and 2017)

The business standard mileage rate is considerably higher than the medical, moving and charitable rates because the business rate contains a depreciation component. No depreciation is allowed for the medical, moving or charitable use of a vehicle.

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Proper education can drive retirement plan participation

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Published: Monday, 20 February 2017 08:35

Written by Phillip Strickler, CPA.CITP

Employers who offer retirement savings plans are already helping their workforces. But not all employees take advantage of these plans. And many who do still don’t contribute enough to retire comfortably. As a business owner, you can help your employees even more — and drive plan participation — by providing proper education on retirement planning.

Here are five ways to go:

1. Teach them about the general concepts of investing. Many employees are unfamiliar with basic economic and investing concepts. Offer instruction on concepts such as:

• Compounding growth,
• Tax implications of different types of savings plans, and
• How much they need to save to reach a certain sum at retirement.

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