HOMEBLOGSmall Business Tax Briefs: September 2021.
Small Business Tax Briefs: September 2021.
Claiming a theft loss deduction if your business is the victim of embezzlement
A business may be able to claim a federal income tax deduction for a theft loss. But does embezzlement count as theft? In most cases it does but you’ll have to substantiate the loss. A recent U.S. Tax Court decision illustrates how that’s sometimes difficult to do.
Basic rules for theft losses
The tax code allows a deduction for losses sustained during the taxable year and not compensated by insurance or other means. The term “theft” is broadly defined to include larceny, embezzlement and robbery. In general, a loss is regarded as arising from theft only if there’s a criminal element to the appropriation of a taxpayer’s property.
In order to claim a theft loss deduction, a taxpayer must prove:
- The amount of the loss,
- The date the loss was discovered, and
- That a theft occurred under the law of the jurisdiction where the alleged loss occurred.
Facts of the recent court case
Years ago, the taxpayer cofounded an S corporation with another shareholder. At the time of the alleged embezzlement, the other original shareholder was no longer a shareholder, and she wasn’t supposed to be compensated by the business. However, according to court records, she continued to manage the S corporation’s books and records.
The taxpayer suffered an illness that prevented him from working for most of the year in question. During this time, the former shareholder paid herself $166,494. Later, the taxpayer filed a civil suit in a California court alleging that the woman had misappropriated funds from the business.
On an amended tax return, the corporation reported a $166,494 theft loss due to the embezzlement. The IRS denied the deduction. After looking at the embezzlement definition under California state law, the Tax Court agreed with the IRS.
The Tax Court stated that the taxpayer didn’t offer evidence that the former shareholder “acted with the intent to defraud,” and the taxpayer didn’t show that the corporation “experienced a theft meeting the elements of embezzlement under California law.”
The IRS and the court also denied the taxpayer’s alternate argument that the corporation should be allowed to claim a compensation deduction for the amount of money the former shareholder paid herself. The court stated that the taxpayer didn’t provide evidence that the woman was entitled to be paid compensation from the corporation and therefore, the corporation wasn’t entitled to a compensation deduction. (TC Memo 2021-66)
How to proceed if you’re victimized
If your business is victimized by theft, embezzlement or internal fraud, you may be able to claim a tax deduction for the loss. Keep in mind that a deductible loss can only be claimed for the year in which the loss is discovered, and that you must meet other tax-law requirements. Keep records to substantiate the claimed theft loss, including when you discovered the loss. If you receive an insurance payment or other reimbursement for the loss, that amount must be subtracted when computing the deductible loss for tax purposes. Contact us with any questions you may have about theft and casualty loss deductions.
Tax breaks to consider during National Small Business Week
The week of September 13-17 has been declared National Small Business Week by the Small Business Administration. To commemorate the week, here are three tax breaks to consider.
1. Claim bonus depreciation or a Section 179 deduction for asset additions
Under current law, 100% first-year bonus depreciation is available for qualified new and used property that’s acquired and placed in service in calendar year 2021. That means your business might be able to write off the entire cost of some or all asset additions on this year’s return. Consider making acquisitions between now and December 31.
Note: It doesn’t always make sense to claim a 100% bonus depreciation deduction in the first year that qualifying property is placed in service. For example, if you think that tax rates will increase in the future — either due to tax law changes or a change in your income — it might be better to forgo bonus depreciation and instead depreciate your 2021 asset acquisitions over time.
There’s also a Section 179 deduction for eligible asset purchases. The maximum Section 179 deduction is $1.05 million for qualifying property placed in service in 2021. Recent tax laws have enhanced Section 179 and bonus depreciation but most businesses benefit more by claiming bonus depreciation. We can explain the details of these tax breaks and which is right for your business. You don’t have to decide until you file your tax return.
2. Claim bonus depreciation for a heavy vehicle
The 100% first-year bonus depreciation provision can have a sizable, beneficial impact on first-year depreciation deductions for new and used heavy SUVs, pickups and vans used over 50% for business. For federal tax purposes, heavy vehicles are treated as transportation equipment so they qualify for 100% bonus depreciation.
This option is available only when the manufacturer’s gross vehicle weight rating (GVWR) is above 6,000 pounds. You can verify a vehicle’s GVWR by looking at the manufacturer’s label, usually found on the inside edge of the driver’s side door.
Buying an eligible vehicle and placing it in service before the end of the year can deliver a big write-off on this year’s return. Before signing a sales contract, we can help evaluate what’s right for your business.
3. Maximize the QBI deduction for pass-through businesses
A valuable deduction is the one based on qualified business income (QBI) from pass-through entities. For tax years through 2025, the deduction can be up to 20% of a pass-through entity owner’s QBI. This deduction is subject to restrictions that can apply at higher income levels and based on the owner’s taxable income.
For QBI deduction purposes, pass-through entities are defined as sole proprietorships, single-member LLCs that are treated as sole proprietorships for tax purposes, partnerships, LLCs that are treated as partnerships for tax purposes and S corporations. For these taxpayers, the deduction can also be claimed for up to 20% of income from qualified real estate investment trust dividends and 20% of qualified income from publicly traded partnerships.
Because of various limitations on the QBI deduction, tax planning moves can unexpectedly increase or decrease it. For example, strategies that reduce this year’s taxable income can have the negative side-effect of reducing your QBI deduction.
These are only a few of the tax breaks your small business may be able to claim. Contact us to help evaluate your planning options and optimize your tax results.
Tax depreciation rules for business automobiles
If you use an automobile in your trade or business, you may wonder how depreciation tax deductions are determined. The rules are complicated, and special limitations that apply to vehicles classified as passenger autos (which include many pickups and SUVs) can result in it taking longer than expected to fully depreciate a vehicle.
Cents-per-mile vs. actual expenses
First, note that separate depreciation calculations for a passenger auto only come into play if you choose to use the actual expense method to calculate deductions. If, instead, you use the standard mileage rate (56 cents per business mile driven for 2021), a depreciation allowance is built into the rate.
If you use the actual expense method to determine your allowable deductions for a passenger auto, you must make a separate depreciation calculation for each year until the vehicle is fully depreciated. According to the general rule, you calculate depreciation over a six-year span as follows: Year 1, 20% of the cost; Year 2, 32%; Year 3, 19.2%; Years 4 and 5, 11.52%; and Year 6, 5.76%. If a vehicle is used 50% or less for business purposes, you must use the straight-line method to calculate depreciation deductions instead of the percentages listed above.
For a passenger auto that costs more than the applicable amount for the year the vehicle is placed in service, you’re limited to specified annual depreciation ceilings. These are indexed for inflation and may change annually.
- For a passenger auto placed in service in 2021 that cost more than $59,000, the Year 1 depreciation ceiling is $18,200 if you choose to deduct $8,000 of first-year bonus depreciation. The annual ceilings for later years are: Year 2, $16,400; Year 3, $9,800; and for all later years, $5,860 until the vehicle is fully depreciated.
- For a passenger auto placed in service in 2021 that cost more than $51,000, the Year 1 depreciation ceiling is $10,200 if you don’t choose to deduct $8,000 of first-year bonus depreciation. The annual ceilings for later years are: Year 2, $16,400; Year 3, $9,800; and for all later years, $5,860 until the vehicle is fully depreciated.
- These ceilings are proportionately reduced for any nonbusiness use. And if a vehicle is used 50% or less for business purposes, you must use the straight-line method to calculate depreciation deductions.
Heavy SUVs, pickups, and vans
Much more favorable depreciation rules apply to heavy SUVs, pickups, and vans used over 50% for business, because they’re treated as transportation equipment for depreciation purposes. This means a vehicle with a gross vehicle weight rating (GVWR) above 6,000 pounds. Quite a few SUVs and pickups pass this test. You can usually find the GVWR on a label on the inside edge of the driver-side door.
After-tax cost is what counts
What’s the impact of these depreciation limits on your business vehicle decisions? They change the after-tax cost of passenger autos used for business. That is, the true cost of a business asset is reduced by the tax savings from related depreciation deductions. To the extent depreciation deductions are reduced, and thereby deferred to future years, the value of the related tax savings is also reduced due to time-value-of-money considerations, and the true cost of the asset is therefore that much higher.
The rules are different if you lease an expensive passenger auto used for business. Contact us if you have questions or want more information.
M&A transactions: Be careful when reporting to the IRS
Low interest rates and other factors have caused global merger and acquisition (M&A) activity to reach new highs in 2021, according to Refinitiv, a provider of financial data. It reports that 2021 is set to be the biggest in M&A history, with the United States accounting for $2.14 trillion worth of transactions already this year. If you’re considering buying or selling a business — or you’re in the process of an M&A transaction — it’s important that both parties report it to the IRS and state agencies in the same way. Otherwise, you may increase your chances of being audited.
If a sale involves business assets (as opposed to stock or ownership interests), the buyer and the seller must generally report to the IRS the purchase price allocations that both use. This is done by attaching IRS Form 8594, “Asset Acquisition Statement,” to each of their respective federal income tax returns for the tax year that includes the transaction.
Here’s what must be reported
If you buy business assets in an M&A transaction, you must allocate the total purchase price to the specific assets that are acquired. The amount allocated to each asset then becomes its initial tax basis. For depreciable and amortizable assets, the initial tax basis of each asset determines the depreciation and amortization deductions for that asset after the acquisition. Depreciable and amortizable assets include:
- Buildings and improvements,
- Furniture, fixtures and
- Intangibles (including customer lists, licenses, patents, copyrights and goodwill).
In addition to reporting the items above, you must also disclose on Form 8594 whether the parties entered into a noncompete agreement, management contract or similar agreement, as well as the monetary consideration paid under it.
What the IRS might examine
The IRS may inspect the forms that are filed to see if the buyer and the seller use different allocations. If the tax agency finds that different allocations are used, auditors may dig deeper and the examination could expand beyond the transaction. So, it’s best to ensure that both parties use the same allocations. Consider including this requirement in your asset purchase agreement at the time of the sale.
The tax implications of buying or selling a business are complex. Price allocations are important because they affect future tax benefits. Both the buyer and the seller need to report them to the IRS in an identical way to avoid unwanted attention. To lock in the best results after an acquisition, consult with us before finalizing any transaction.
Leave A Comment
yeezy boost 35007 January, 2022
I have to show my appreciation to you for rescuing me from this trouble. Just after checking through the world-wide-web and getting basics which are not productive, I believed my life was gone. Being alive without the presence of approaches to the issues you have solved through the short post is a serious case, as well as ones that could have in a negative way affected my career if I had not noticed your blog. Your primary natural talent and kindness in touching a lot of things was precious. I’m not sure what I would’ve done if I hadn’t encountered such a solution like this. I can also at this point look ahead to my future. Thanks a lot so much for your reliable and results-oriented help. I will not hesitate to propose your web page to anybody who would like guidelines about this area.
yeezy boost 350 yeezy boost 350
kobe shoes09 January, 2022
I needed to put you that bit of observation to be able to give many thanks as before for your extraordinary tactics you’ve documented on this page. It’s certainly shockingly open-handed with you to deliver easily all that a lot of folks might have advertised for an e-book in order to make some cash on their own, precisely now that you could possibly have tried it if you ever desired. Those solutions also served to be the fantastic way to be aware that most people have the same keenness similar to my own to grasp more concerning this matter. I believe there are thousands of more pleasurable sessions ahead for people who scan your blog post.
kobe shoes kobe shoes
off white10 January, 2022
Thank you so much for providing individuals with an exceptionally brilliant chance to discover important secrets from here. It’s usually very beneficial and packed with amusement for me and my office acquaintances to visit your blog more than three times a week to read the latest secrets you have. And of course, I am also at all times satisfied with the good methods you serve. Some two ideas on this page are undoubtedly the finest I’ve ever had.
off white off white
jordan 111 January, 2022
My husband and i have been really peaceful that John managed to round up his preliminary research through your ideas he acquired in your site. It is now and again perplexing to simply possibly be giving away concepts that other folks could have been trying to sell. So we fully grasp we have got the website owner to be grateful to for this. The most important illustrations you made, the easy website menu, the relationships you will aid to engender - it’s all unbelievable, and it’s facilitating our son in addition to the family believe that that issue is awesome, which is certainly really serious. Thank you for the whole lot!
jordan 1 jordan 1
adidas yeezy13 January, 2022
I in addition to my friends have already been reading through the good helpful hints found on your web blog and so suddenly got a terrible suspicion I never thanked the site owner for those tips. These women appeared to be stimulated to learn all of them and have in effect in reality been enjoying those things. I appreciate you for being simply thoughtful and for deciding upon this form of essential subject areas millions of individuals are really wanting to be aware of. My very own honest apologies for not expressing appreciation to you sooner.
adidas yeezy adidas yeezy
off white14 January, 2022
I would like to show some thanks to this writer for rescuing me from such a issue. Because of surfing around through the world-wide-web and obtaining proposals which are not pleasant, I believed my life was done. Being alive minus the strategies to the difficulties you’ve resolved through this posting is a serious case, and ones that could have badly damaged my career if I had not noticed your blog post. The knowledge and kindness in maneuvering a lot of stuff was very helpful. I am not sure what I would have done if I hadn’t discovered such a point like this. I’m able to now look ahead to my future. Thanks for your time very much for the expert and sensible help. I won’t think twice to refer your web page to any individual who would like assistance on this issue.
off white off white
yeezy 350 v215 January, 2022
Thank you for all your valuable labor on this web site. My aunt loves carrying out research and it is obvious why. My partner and i notice all regarding the lively mode you make very helpful techniques on the website and therefore strongly encourage response from other individuals about this situation so our own girl is really starting to learn so much. Enjoy the rest of the year. You’re the one carrying out a glorious job.
yeezy 350 v2 yeezy 350 v2
jordan 616 January, 2022
I wanted to type a small note to be able to express gratitude to you for all of the awesome solutions you are giving out here. My rather long internet look up has finally been paid with good tips to talk about with my partners. I ‘d say that many of us website visitors actually are unquestionably blessed to be in a notable website with so many awesome individuals with good methods. I feel extremely lucky to have discovered the website page and look forward to some more entertaining moments reading here. Thanks a lot once more for everything.
jordan 6 jordan 6
paul george shoes17 January, 2022
I intended to post you this very small observation just to say thanks a lot as before on your beautiful concepts you have featured in this case. This has been really open-handed with people like you to present extensively exactly what most people could have marketed as an ebook to earn some bucks on their own, and in particular seeing that you could have done it if you desired. These tricks as well acted to be the great way to know that other people online have a similar zeal similar to my own to realize much more around this issue. I think there are thousands of more pleasurable instances in the future for folks who discover your site.
paul george shoes paul george shoes
lebron james shoes17 January, 2022
I definitely wanted to jot down a brief message to be able to express gratitude to you for some of the magnificent tips you are posting at this site. My time-consuming internet research has now been recognized with brilliant facts and strategies to share with my family members. I ‘d mention that most of us website visitors actually are unquestionably blessed to exist in a good place with so many wonderful people with valuable tips and hints. I feel very much grateful to have encountered your site and look forward to so many more entertaining minutes reading here. Thank you once again for a lot of things.
lebron james shoes lebron james shoes
off white outlet17 January, 2022
I intended to post you a bit of remark to help give many thanks again over the pleasing secrets you’ve featured at this time. This is tremendously open-handed with people like you to offer extensively precisely what some people would’ve made available as an e book to generate some cash for their own end, specifically since you could have tried it if you ever considered necessary. Those tips in addition served to provide a good way to be sure that many people have a similar desire just like my personal own to learn very much more concerning this issue. I’m sure there are several more fun periods in the future for people who look into your blog.
off white outlet off white outlet
jordan shoes17 January, 2022
I am also writing to make you know what a cool encounter my wife’s girl had using your blog. She discovered plenty of issues, with the inclusion of what it’s like to possess an ideal giving heart to have certain people just comprehend some grueling topics. You actually did more than visitors’ expected results. I appreciate you for rendering the practical, safe, informative as well as easy thoughts on your topic to Julie.
jordan shoes jordan shoes
kyrie shoes17 January, 2022
My spouse and i got really cheerful when Raymond managed to conclude his inquiry while using the precious recommendations he made through the web page. It’s not at all simplistic just to find yourself handing out tips and hints which usually a number of people might have been selling. And we figure out we now have the blog owner to thank for that. All of the illustrations you’ve made, the simple site navigation, the relationships you will help to instill - it’s got many terrific, and it’s really assisting our son and us believe that the subject matter is entertaining, and that’s exceedingly fundamental. Many thanks for the whole thing!
kyrie shoes kyrie shoes
kyrie 517 January, 2022
I wanted to jot down a word to say thanks to you for the wonderful points you are posting here. My incredibly long internet investigation has at the end been honored with extremely good concept to share with my colleagues. I ‘d point out that we website visitors are really blessed to live in a decent community with so many awesome people with valuable advice. I feel somewhat lucky to have seen the website and look forward to some more entertaining times reading here. Thanks once again for everything.
kyrie 5 kyrie 5
supreme17 January, 2022
I want to express my thanks to this writer just for bailing me out of this trouble. After searching through the internet and obtaining ways that were not productive, I figured my entire life was gone. Living devoid of the strategies to the difficulties you’ve resolved by means of this short article is a serious case, and ones that could have in a wrong way damaged my career if I hadn’t encountered your web site. Your main natural talent and kindness in touching all the things was important. I’m not sure what I would have done if I hadn’t come upon such a point like this. I’m able to now look ahead to my future. Thanks very much for the specialized and amazing help. I will not hesitate to refer the website to anyone who should get tips about this matter.
moncler outlet17 January, 2022
I really wanted to develop a quick message so as to say thanks to you for all of the great facts you are posting on this site. My long internet investigation has now been paid with sensible facts to write about with my good friends. I ‘d mention that many of us visitors are definitely endowed to be in a really good website with so many brilliant individuals with valuable points. I feel extremely privileged to have encountered your entire web page and look forward to tons of more entertaining moments reading here. Thank you again for everything.
moncler outlet moncler outlet
curry 6 shoes17 January, 2022
I have to get across my affection for your kind-heartedness supporting those people who require help with this particular area of interest. Your special dedication to passing the solution all-around was remarkably practical and has in most cases allowed some individuals just like me to arrive at their goals. Your entire warm and friendly advice denotes a whole lot a person like me and even further to my office colleagues. Regards; from each one of us.
curry 6 shoes curry 6 shoes
cheap jordans19 January, 2022
I wanted to write you one bit of remark to say thanks a lot the moment again for all the lovely secrets you have contributed in this article. It has been so generous with you to provide unreservedly exactly what numerous people could possibly have supplied for an e book to earn some money for their own end, and in particular given that you could have tried it in case you considered necessary. These tips also served to provide a great way to fully grasp that other people online have the same interest much like my very own to understand a little more with regards to this issue. I know there are a lot more fun sessions up front for individuals who check out your blog post.
cheap jordans cheap jordans
off white hoodie20 January, 2022
Thanks so much for giving everyone an extremely breathtaking chance to read articles and blog posts from here. It’s usually very useful and stuffed with amusement for me and my office acquaintances to visit your site at minimum thrice per week to see the fresh issues you will have. And of course, I’m so certainly fascinated with your tremendous tips and hints you give. Certain two points on this page are without a doubt the most suitable we have all ever had.
off white hoodie off white hoodie
a bathing ape06 January, 2022
My husband and i felt now delighted that Emmanuel could finish up his inquiry because of the precious recommendations he grabbed out of your web site. It’s not at all simplistic to simply be giving for free facts which usually many people have been making money from. So we figure out we’ve got the writer to be grateful to for that. Most of the explanations you have made, the straightforward blog navigation, the relationships you help to foster - it’s many great, and it’s really leading our son and our family consider that the subject matter is enjoyable, and that’s exceedingly indispensable. Many thanks for all the pieces!
a bathing ape a bathing ape