HOMEBLOGSmall Business Tax Briefs: December 2021
Small Business Tax Briefs: December 2021
The tax implications of owning a corporate aircraft
If your business is successful and you do a lot of business travel, you may have considered buying a corporate aircraft. Of course, there are tax and non-tax implications for aircraft ownership. Let’s look at the basic tax rules.
Business travel only
In most cases, if your company buys a plane used only for business, the company can deduct its entire cost in the year that it’s placed into service. The cases in which the aircraft is ineligible for this immediate write-off are:
- The few instances in which neither the 100% bonus depreciation rules nor the Section 179 small business expensing rules apply or
- When the taxpayer has elected out of 100% bonus depreciation and hasn’t made the election to apply Sec. 179 expensing.
In those cases, the depreciation schedule is 20% of the cost for year 1, 32% for year 2, 19.2% for year 3, 11.52% for year 4, 11.52% for year 5 and 5.76% for year 6. Note that the bonus depreciation rate is scheduled to be phased down for property placed in service after 2022.
Interestingly, these “cost recovery” rules are more favorable than the rules for business autos. The business auto rules place annual caps on depreciation and, in the year an auto is placed in service, both depreciation and Sec. 179 expensing.
In the case of a business-travel-only aircraft, post-acquisition expenses aren’t treated differently than post-acquisition expenditures for other machinery and equipment. For example, routine maintenance and repair expenses are immediately deductible while amounts that improve or restore the aircraft must be capitalized and depreciated.
The only “catch” that distinguishes the tax treatment of an aircraft used 100% for business travel from the treatment of most other machinery and equipment is that company aircraft are one of the categories of business property that require more rigorous recordkeeping to prove the connection of uses and expenses to business purposes.
Business and personal travel
Personal travel won’t affect the depreciation results discussed above if the value of the travel is compensation income (and is reported and withheld upon as such) to a person that isn’t at least a 5% owner or a person “related” to the corporation. This means, for example, that personal travel by a non-share-holding employee won’t affect depreciation if the value of the travel is compensation to him or her and is reported and withheld upon. The depreciation results can be affected if the person for whom the value of the travel is compensation income is at least a 5% shareholder or a related person. But even in that case, the depreciation results won’t be affected if you comply with a generous “fail-safe” rule.
With one limitation, personal travel won’t affect the treatment of otherwise-deductible post-acquisition expenditures if the value of the travel is compensation income (and is reported and withheld upon). The limitation is that if the person for whom the value of the travel is to be treated as compensation income is at least a 10% owner, director, officer or a person related to the corporation, the amount of the deduction for otherwise-deductible costs allocable to the personal travel can’t exceed the travel value.
Other rules and limitations may apply. As you can see, even in the case of an aircraft used for business and personal travel, these rules aren’t onerous. But they do require careful recordkeeping and, when an aircraft is used for personal travel, compliance with reporting and withholding requirements. Contact us to learn more in your situation.
Providing a company car? Here’s how taxes are handled
The use of a company vehicle is a valuable fringe benefit for owners and employees of small businesses. This perk results in tax deductions for the employer as well as tax breaks for the owners and employees using the cars. (And of course, they get the nontax benefit of getting a company car.) Plus, current tax law and IRS rules make the benefit even better than it was in the past.
The rules in action
Let’s say you’re the owner-employee of a corporation that’s going to provide you with a company car. You need the car to visit customers, meet with vendors and check on suppliers. You expect to drive the car 8,500 miles a year for business. You also expect to use the car for about 7,000 miles of personal driving, including commuting, running errands and weekend trips. Therefore, your usage of the vehicle will be approximately 55% for business and 45% for personal purposes. You want a nice car to reflect positively on your business, so the corporation buys a new $55,000 luxury sedan.
Your cost for personal use of the vehicle is equal to the tax you pay on the fringe benefit value of your 45% personal mileage. By contrast, if you bought the car yourself to be able to drive the personal miles, you’d be out-of-pocket for the entire purchase cost of the car.
Your personal use will be treated as fringe benefit income. For tax purposes, your corporation will treat the car much the same way it would any other business asset, subject to depreciation deduction restrictions if the auto is purchased. Out-of-pocket expenses related to the car (including insurance, gas, oil and maintenance) are deductible, including the portion that relates to your personal use. If the corporation finances the car, the interest it pays on the loan would be deductible as a business expense (unless the business is subject to the business interest expense deduction limitation under the tax code).
In contrast, if you bought the auto yourself, you wouldn’t be entitled to any deductions. Your outlays for the business-related portion of your driving would be unreimbursed employee business expenses that are nondeductible from 2018 to 2025 due to the suspension of miscellaneous itemized deductions under the Tax Cuts and Jobs Act. And if you financed the car yourself, the interest payments would be nondeductible.
And finally, the purchase of the car by your corporation will have no effect on your credit rating.
Providing an auto for an owner’s or key employee’s business and personal use comes with complications and paperwork. Personal use will have to be tracked and valued under the fringe benefit tax rules and treated as income. This article only explains the basics.
Despite the necessary valuation and paperwork, a company-provided car is still a valuable fringe benefit for business owners and key employees. It can provide them with the use of a vehicle at a low tax cost while generating tax deductions for their businesses. We can help you stay in compliance with the rules and explain more about this prized perk.
2022 Q1 tax calendar: Key deadlines for businesses and other employers
Here are some of the key tax-related deadlines affecting businesses and other employers during the first quarter of 2022. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.
January 17 (The usual deadline of January 15 is a Saturday)
- Pay the final installment of 2021 estimated tax.
- Farmers and fishermen: Pay estimated tax for 2021.
- File 2021 Forms W-2, “Wage and Tax Statement,” with the Social Security Administration and provide copies to your employees.
- Provide copies of 2021 Forms 1099-MISC, “Miscellaneous Income,” to recipients of income from your business where required.
- File 2021 Forms 1099-MISC, reporting nonemployee compensation payments in Box 7, with the IRS.
- File Form 940, “Employer’s Annual Federal Unemployment (FUTA) Tax Return,” for 2021. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it’s more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 10 to file the return.
- File Form 941, “Employer’s Quarterly Federal Tax Return,” to report Medicare, Social Security and income taxes withheld in the fourth quarter of 2021. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter in full and on time, you have until February 10 to file the return. (Employers that have an estimated annual employment tax liability of $1,000 or less may be eligible to file Form 944, “Employer’s Annual Federal Tax Return.”)
- File Form 945, “Annual Return of Withheld Federal Income Tax,” for 2021 to report income tax withheld on all nonpayroll items, including backup withholding and withholding on accounts such as pensions, annuities and IRAs. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year in full and on time, you have until February 10 to file the return.
- File 2021 Forms 1099-MISC with the IRS if: 1) they’re not required to be filed earlier and 2) you’re filing paper copies. (Otherwise, the filing deadline is March 31.)
- If a calendar-year partnership or S corporation, file or extend your 2021 tax return and pay any tax due. If the return isn’t extended, this is also the last day to make 2021 contributions to pension and profit-sharing plans.
Will the standard business mileage rate go up in 2022? Yes!
After two years of no increases, the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business will be going up in 2022 by 2.5 cents per mile. The IRS recently announced that the cents-per-mile rate for the business use of a car, van, pickup or panel truck will be 58.5 cents (up from 56 cents for 2021).
The increased tax deduction partly reflects the price of gasoline. On December 21, 2021, the national average price of a gallon of regular gas was $3.29, compared with $2.22 a year earlier, according to AAA Gas Prices.
Don’t want to keep track of actual expenses?
Businesses can generally deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases, certain limits apply to depreciation write-offs on vehicles that don’t apply to other types of business assets.
The cents-per-mile rate is beneficial if you don’t want to keep track of actual vehicle-related expenses. With this method, you don’t have to account for all your actual expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.
Using the cents-per-mile rate is also popular with businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles a great deal for business purposes. Why? Under current law, employees can’t deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.
If you do use the cents-per-mile rate, keep in mind that you must comply with various rules. If you don’t comply, the reimbursements could be considered taxable wages to the employees.
How is the rate calculated?
The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the cents-per-mile rate midyear.
When can the cents-per-mile method not be used?
There are some cases when you can’t use the cents-per-mile rate. It partly depends on how you’ve claimed deductions for the same vehicle in the past. In other situations, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.
As you can see, there are many factors to consider in deciding whether to use the standard mileage rate to deduct vehicle expenses. We can help if you have questions about tracking and claiming such expenses in 2022 — or claiming 2021 expenses on your 2021 income tax return.
Leave A Comment
golden goose08 January, 2022
Thank you for all your valuable efforts on this website. Ellie enjoys making time for investigations and it is obvious why. We all notice all of the powerful way you produce worthwhile tactics by means of your blog and as well as recommend participation from people on the subject matter and my simple princess is without question understanding a great deal. Have fun with the remaining portion of the year. You’re performing a great job.
golden goose golden goose
giannis shoes10 January, 2022
Thank you for all of the labor on this web site. My aunt really likes getting into investigations and it’s really easy to understand why. Many of us hear all regarding the powerful manner you give advantageous techniques on your web blog and therefore boost contribution from other people on this situation while our own daughter is actually being taught so much. Enjoy the rest of the new year. Your carrying out a remarkable job.
giannis shoes giannis shoes
kevin durant shoes11 January, 2022
I together with my pals have already been taking note of the best key points found on the blog and so then I had a terrible suspicion I never thanked the blog owner for them. My boys ended up totally excited to learn them and have in reality been taking pleasure in those things. We appreciate you being really helpful and for opting for this form of superior ideas most people are really wanting to understand about. Our own sincere apologies for not saying thanks to earlier.
kevin durant shoes kevin durant shoes
kyrie shoes11 January, 2022
I’m writing to make you know what a fantastic discovery my wife’s girl developed reading your site. She noticed many details, including how it is like to possess an incredible coaching spirit to get a number of people easily fully grasp various extremely tough matters. You really exceeded visitors’ desires. Many thanks for giving the productive, trustworthy, informative as well as unique tips about this topic to Ethel.
kyrie shoes kyrie shoes
curry 811 January, 2022
My husband and i felt quite lucky when John could round up his basic research by way of the precious recommendations he acquired using your weblog. It is now and again perplexing to simply happen to be handing out solutions which usually people have been trying to sell. So we do know we’ve got the blog owner to be grateful to for that. All of the illustrations you have made, the simple blog navigation, the relationships your site make it possible to foster - it’s got mostly terrific, and it is assisting our son and our family feel that the subject is interesting, which is certainly particularly vital. Thanks for all!
curry 8 curry 8
supreme shirt11 January, 2022
I in addition to my guys ended up checking out the nice tips and tricks on your website and suddenly came up with a horrible suspicion I never thanked the web site owner for them. The ladies were as a consequence thrilled to learn all of them and have very much been taking pleasure in these things. Thank you for indeed being considerably accommodating and then for selecting this form of superb issues millions of individuals are really eager to understand about. My very own sincere apologies for not expressing gratitude to earlier.
supreme shirt supreme shirt
yeezy11 January, 2022
I in addition to my guys have already been looking through the good procedures found on your website and then quickly came up with a horrible suspicion I never expressed respect to the web site owner for those strategies. My boys became as a consequence stimulated to study them and have sincerely been tapping into them. We appreciate you being indeed helpful and also for using variety of wonderful guides millions of individuals are really desperate to know about. My very own honest apologies for not expressing appreciation to earlier.
pg 112 January, 2022
I needed to compose you that very small observation to help give many thanks the moment again on your great knowledge you have shown on this page. This has been really shockingly open-handed of people like you to convey extensively all that many individuals could have offered for sale for an ebook in making some money on their own, certainly now that you could have done it if you wanted. The inspiring ideas additionally worked like the good way to fully grasp some people have a similar zeal similar to mine to find out very much more on the subject of this issue. I believe there are many more enjoyable instances in the future for individuals who take a look at your website.
pg 1 pg 1
air jordans14 January, 2022
I enjoy you because of every one of your work on this blog. My mum really loves conducting investigation and it’s easy to see why. Most of us hear all of the compelling tactic you offer priceless thoughts by means of your website and as well increase participation from the others about this content so my simple princess is truly understanding a lot. Take advantage of the rest of the new year. You have been performing a stunning job.
air jordans air jordans
moncler outlet15 January, 2022
Thank you so much for providing individuals with an extremely superb chance to read in detail from this blog. It can be very useful and jam-packed with a good time for me personally and my office acquaintances to search your web site really 3 times weekly to find out the latest tips you have. Not to mention, I’m also actually pleased considering the striking solutions served by you. Some 3 facts in this article are in reality the most impressive I’ve had.
moncler outlet moncler outlet
supreme clothing17 January, 2022
I simply needed to thank you very much once more. I do not know what I might have undertaken in the absence of the type of pointers revealed by you directly on that area. It was actually the frightening dilemma in my position, nevertheless encountering this specialized approach you solved the issue made me to leap over gladness. Now i am thankful for the support and as well , sincerely hope you recognize what a powerful job you happen to be carrying out training many others by way of your webblog. I’m certain you have never got to know any of us.
supreme clothing supreme clothing
curry 618 January, 2022
I’m just commenting to make you know of the remarkable discovery my wife’s daughter went through visiting your blog. She came to find a lot of pieces, which included how it is like to have a marvelous coaching heart to have the others without hassle know just exactly chosen extremely tough topics. You truly exceeded her expected results. Thank you for providing the effective, dependable, informative and in addition unique guidance on that topic to Evelyn.
curry 6 curry 6
supreme clothing20 January, 2022
I want to show my passion for your kind-heartedness for all those that must have guidance on the content. Your very own dedication to getting the solution around appeared to be remarkably practical and has always permitted employees like me to realize their endeavors. This informative guideline means so much a person like me and especially to my office workers. Many thanks; from everyone of us.
supreme clothing supreme clothing
supreme hoodie21 January, 2022
I together with my pals appeared to be viewing the excellent information from your site and then the sudden came up with an awful feeling I never thanked the site owner for those tips. These women were for that reason stimulated to see all of them and have unquestionably been having fun with them. Appreciation for really being considerably considerate and also for picking out this form of superior resources most people are really needing to be informed on. Our honest apologies for not saying thanks to you sooner.
supreme hoodie supreme hoodie
off white21 January, 2022
I truly wanted to write a small comment to be able to thank you for all of the fantastic hints you are showing at this website. My long internet investigation has at the end been paid with good quality knowledge to share with my friends and classmates. I would admit that most of us readers are unquestionably endowed to exist in a fine place with many brilliant individuals with interesting ideas. I feel pretty fortunate to have seen your entire site and look forward to some more fun moments reading here. Thanks again for everything.
off white off white
off white clothing24 January, 2022
Needed to put you one little observation in order to give thanks as before just for the fantastic methods you’ve contributed on this page. It has been so wonderfully generous of you to deliver publicly what exactly a lot of people could have marketed as an e book in order to make some dough on their own, and in particular considering that you could possibly have done it if you decided. Those basics likewise acted as a easy way to understand that someone else have the identical interest just like my personal own to figure out a good deal more when it comes to this issue. I know there are many more fun times in the future for those who check out your website.
off white clothing off white clothing
moncler jackets26 January, 2022
Thanks for each of your efforts on this web page. Kate loves carrying out investigations and it is easy to see why. My partner and i notice all about the powerful method you make important guidelines via the web site and in addition welcome contribution from others on that point while our simple princess is without a doubt learning so much. Take pleasure in the remaining portion of the year. You have been doing a tremendous job.
moncler jackets moncler jackets
supreme clothing26 January, 2022
I as well as my buddies came going through the nice tips and hints from your website and quickly I had a terrible feeling I never thanked the blog owner for those tips. My young men are actually for this reason passionate to read through all of them and have in effect simply been enjoying them. Thanks for simply being simply thoughtful as well as for picking some excellent information most people are really eager to be aware of. Our own sincere regret for not saying thanks to sooner.
supreme clothing supreme clothing
bape26 January, 2022
Thanks so much for providing individuals with an exceptionally memorable possiblity to check tips from here. It’s usually so pleasing plus packed with amusement for me and my office peers to visit your website at the least 3 times in one week to find out the latest issues you will have. And indeed, I’m also at all times contented considering the mind-blowing hints you give. Certain 4 facts in this post are basically the most effective we have all had.
jordan shoes07 January, 2022
I wanted to write you this tiny word to help thank you so much as before for these splendid things you have featured at this time. It was quite strangely open-handed of you to give easily just what a lot of people might have distributed for an e-book to make some money for themselves, even more so seeing that you could have tried it if you wanted. Those techniques additionally worked to be the fantastic way to know that some people have similar dreams really like mine to grasp great deal more when it comes to this problem. I am certain there are several more enjoyable moments in the future for individuals who look over your blog post.
jordan shoes jordan shoes