Acountingways.com

Yes please! ☕️

People ask me all the time what the differenceis between a bookkeeper and an accountant. This infographic best explains it. https://acountingways.com/bookkeeping

Part 3 Failure to Maximize Your Section 179 Deduction

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment &/or software purchased or financed during the tax year. You can deduct the FULL PURCHASE PRICE from your gross income. It’s an incentive created by the U.S. government to encourage businesses to buy equipment and invest in themselves. Invest in YOUR COMPANY GROWTH and lower your taxes.

The section 179 depreciation deduction is currently set at $500,000. There’s a number of details and limits regarding proper use of section 179, but failure to use this deduction means you may be overpaying your taxes. Let’s look at an example of the math regarding a section 179 depreciation deduction below.

Ivan decides he needs to replace an old truck in his company. He buys the new truck for $55,000 using attractive financing to keep his payments as low as possible. By buying at year end (Dec), he spends little to nothing in 2016. Payments begin in 2017. Ivan is ready for the 2017 season and he enjoys a huge tax deduction on his 2016 tax return. Here’s the math:

Purchase Price of Truck/Equipment – $50,000

Section 179 Deduction – $50,000 (check with your accountant to verify your situation)

Total First Year Deduction – $50,000

Cash Savings Year One @ 35% Federal Rate – $17,500

Actual Cost of the Truck/Equipment – $32,500

Profitable businesses can use the section 179 tax deduction to legally pay Zero Dollars in taxes.

This special tax incentive is designed to encourage you to re-invest in your business. It allows you to avoid paying taxes on up to $500,000 of profits every single year.

First, equipment doesn’t last forever. Failure to update or replace your equipment leads to downtime in the field. Downtime (labor cost) is MUCH more expensive than equipment payments. Just look at your payroll each month and compare that to your equipment payments. Labor is your biggest expense.

Updating your equipment can lead to increases in productivity, employee retention or better positioning in your target markets.

Fact: you’ll rarely recover the cost of a replacement engine or transmission when you sell old equipment. Further, many banks will not finance equipment repairs. And understand this. Banks don’t like to finance USED trucks that are over 10 years old. When equipment gets beyond ten years old, the market for that equipment gets dramatically smaller because the only buyers are CASH buyers. And cash buyers don’t pay top dollar.

A strategy to maximize your tax deductions & lower your equipment costs is to sell your old trucks in year 8 or year 9 to maximize sales price. Use part of the proceeds from the sale for a down payment on the newer equipment or stuff the cash in your pocket. Buy newer equipment & take full advantage of section 179 depreciation as long as you operate a profitable company.

Hire The Right Accountant – Acounting Ways We will help you manage operations by recommending process improvements and introduce tools that can save you time and money

Part 2 Don't overpay the IRS, our government wastes enough money as it is. Failure to Fund Your Personal IRA, Simple IRA, 401-K or SEP
ALWAYS PAY YOURSELF BEFORE YOU PAY THE IRS! For those of you who run a really profitable business, this may sound like a very elementary tax reduction strategy. But just because you are aware of these tax-reduction techniques, it doesn’t mean you maximize their impact on reducing your taxes. Let me give you a very simple illustration.
Ivan owns a contracting company. He works hard everyday to provide his customers with top-quality workmanship and excellent customer service. His company is profitable at year end. He understands that he has a responsibility to plan for his family’s financial future. Therefore, he opens an Individual Retirement Account (IRA). Ivan makes certain that he places the maximum allowable contribution to his IRA account of $6000. Paying yourself first is a terrific wealth strategy! This becomes a tax-deductible expense reducing his taxable income by $6000.
Here’s the math:
$6000 x 35% federal tax = $2,100 federal tax reduction
Advanced business owners learn that by implementing a Simple IRA, 401-K or a SEP inside your company, can drastically lower your taxes by a factor of 2x to 4x on the numbers above. There are countless rules, regulations and requirements for company sponsored retirement accounts, so consult with your tax professional regarding this strategy. It’s silly to overpay your taxes. As a business owner, the government gives you tools to lower your taxes. Failure to use tools like these is just bad business. You and your family can make much better use of YOUR money than the federal or state government.
Funding your personal IRA account for 10 years puts $55,000 into your retirement account and saves you $19,250 in federal income taxes along the way! PAY YOUSELF FIRST EVERY YEAR!
If you’re a business owner like me (and my loyal clients), you know it’s tough to build up cash when you’re re-investing profits into growing your company. But when you LOWER your tax bill, you can easily afford to pay yourself first! If you’d like help on advanced tax reduction strategies.

Hire The Right Accountant – Acounting Ways We will help you manage operations by recommending process improvements and introduce tools that can save you time and money