Be Aware of State Tax Nexus Laws
A nexus in tax law applies to businesses that have a physical location within a state, and consequently impose taxes on out-of-state businesses that operate within their borders. Not all businesses are liable for sales tax under a nexus, but if a business falls under one of the following categories they may be liable: resident employees working within the state where the business is located; the business’ is physical location is within the state; the business has tangible or intangible property in the state; or employees solicit business within the state. Each state has nexus laws to govern sales taxes, so itis important for businesses to have an expert available to educate them on tax laws that impact the specific areas where they do business.
According to the IRS a business bad debt is a loss from the worthlessness of a debt that was either created or acquired in your trade or business. ”Bad debts for businesses are normally deducted from taxable income in the year they become worthless. As such, you should keep adequate records of collection activities to support a position claiming worthlessness of debt in the event the IRS challenges the bad debt deduction.
Take Advantage of Business Operating Deductions
While many of these are well-known and taken advantage of on a regular basis, the IRS has made available on its website a list of business deductions to point you in the right direction.
Costs that are part of the investment in your business are called capital expenses There are three different costs that can be capitalized: business start-up costs, business assets, and improvements.
Business use of your home: If part of your home is used for business, certain expenses may be deducted: These include insurance, utilities and depreciation.
Business use of your car:
You can deduct car expenses if the vehicle is used for business. Business mileage must be kept separate from personal mileage and the actual mileage must be tracked. The IRS shares a list of current mileage rates as well as those from prior years on its website.
For a more inclusive list of deductible business expenses please see Publication 535 from the IRS
Managing the Net Investment Income Tax
The surtax on investment income applies to taxpayers with modified adjusted income above $250,000 for married filing jointly taxpayers, and $200,000 for single filers. These thresholds are not inflation-indexed
The 3.8 percent surtax applies to: Taxable interest; Qualified and non-qualified dividends; Short- and long-term capital gains; Annuity income (unless the annuity is held in a qualified retirement plan); and, Income from passive activities (e.g., most forms of rental income).
The two primary categories of investment income not subject to the tax are exempt interest (e.g., municipal bonds) and distributions from a qualified plan, including those coming from an annuity contract.
Perhaps the only potential “loophole” remaining to reduce a taxpayer’s exposure to the surtax for 2014 after Jan. 1, 2015, applies to self-employed taxpayers who maintain a SEP plan. The deadline for making deductible contributions to SEPs is the taxpayer’s filing deadline, including extensions, so they might avoid some of that 3.8 percent hit by maximizing SEP contributions.