Smart Deductions for Small Business

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The most common financial mistakes small businesses make is overlooking key, money saving tax deductions.
Section 179 is a tax deduction allowing businesses to write-off up to $500,000 in qualifying equipment purchases made in 2013.

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Smart Deductions for Small Business

  1. 1. Smart Deductions for Small Business Best End-of-Year Tax Tips to Save Your Business Money Digium, Inc. • Barbara Weltman
  2. 2. A small business cannot afford to miss an opportunity to save money. Yet one of the most common financial mistakes small businesses make is overlooking key, money saving tax deductions. Section 179 is a tax deduction allowing businesses to write-off up to $500,000 in qualifying equipment purchases made in 2013. This special deduction is set to drastically decrease next year, making it imperative that businesses take full advantage of it in 2013. The Section 179 Tax Deduction is a deduction that can be particularly beneficial in helping businesses afford IT projects, such as replacing legacy phone systems with upgraded business communications solutions. Because some equipment can also be leased, it can mean an even greater total savings on year-end communications purchases. Barbara Weltman was a featured guest expert in a webinar, “Smart Deductions for Small Businesses,” sponsored by Digium, Inc. Big Ideas for Small Business, Inc. Attorney and advocate of small businesses for over 30 years: 2013 Small Business Influencer Champion Publisher of Big Ideas ® for Small Business ® and Idea of the Day at www.barbaraweltman.com Blogger: SBA.gov; Small Biz Trends Guest columnist: The Wall Street Journal, U.S. News and World Reports, and Entrepreneur. Author: J.K. Lasser’s Small Business Taxes (Wiley)
  3. 3. Key findings in Balboa Capital’s survey of small business owners: 45 47 % are not familiar with Section 179 % have elected to take 54 45 the Section 179 Tax Deduction in years past % plan to use the Section 179 Tax Deduction in 2013 Successful businesses take advantage of legal tax incentives to help lower their operating costs. The Section 179 Deduction is a tax incentive that is easy to use and gives businesses an incentive to invest in themselves by adding capital equipment. In short, taking advantage of the Section 179 Deduction will help your business keep more capital, while also getting needed equipment, vehicles, and off-the-shelf software. % will invest in up to 28 $50,000 worth of capital equipment in 2013 % will finance equipment in 2013, 17% will apply for a bank loan You should contact your tax advisor to learn about the specific impact to your business.
  4. 4. How Section 179 Works When your business buys certain items of equipment, it typically gets to write them off a little at a time through depreciation. In other words, if your company spends $50,000 on a machine, it gets to write off $10,000 a year for five years (these numbers are only meant to give you an example). Now, while it's true that this is better than no write off at all, most business owners would really prefer to write off the entire equipment purchase price for the year they buy it. In fact, if a business could write off the entire amount, they might add more equipment this year instead of waiting over the next few years. That's the whole purpose behind Section 179—to motivate the American economy (and your business) to move in a positive direction. For most small businesses (adding total equipment, software, and vehicles totaling less than $500,000 in 2013), the entire cost can be written-off on the 2013 tax return. Basic year-end strategies Assess whether you are profitable ■ ■ ■ Check your P&L statement through November Make projections for December Talk with your tax/financial advisor about your numbers
  5. 5. Business Equipment Under Section 179, businesses may write-off up to $500,000 on qualified equipment purchases and leases of up to $500,000 in 2013. Businesses that exceed the threshold of $500,000 in capital expenditures can take a Bonus Depreciation of 50% on the amount that exceeds the above limit. The equipment must be placed into service between January 1 and December 31, 2013. If a business is unprofitable in 2013, and has no taxable income to use the deduction, that business can elect to use the 50% Bonus Depreciation and carry-forward to a year when the business is profitable. Basic year-end strategies For profitable businesses: Cash basis: ■ Defer income ■ Accelerate deductions ■ Decide on year-end bonuses ■ Make equipment purchases ■ Set up qualified retirement plans
  6. 6. Tax Code Section 179 and Election to Expense Detail The election, which is made on Form 4562, is for the tax year the property was placed in service or an amended return filed within the time prescribed by law. Section 179 property is property that you acquire by purchase for use in the active conduct of your business. To ensure property qualifies, reference Section179.org. This expense deduction is provided for taxpayers (other than estates, trusts or certain non-corporate lessors) who elect to treat the cost of qualifying property as an expense rather than a capital expenditure. Under Section 179, equipment purchases, up to the amount approved for a given year, can be expensed (deducted from taxable income) if installed by December 31st. Non-tax leases qualify for this deduction in their year of inception. Any excess above the expensed amount can be depreciated depending on the equipment type. Not all states follow federal law. Contact your tax advisor for further details or visit www.irs.gov for specific details. Basic year-end strategies If your business expects losses for the year: ■ Get ready to claim a net operating loss (NOL) carryback NOLs generate cash flow to help your business
  7. 7. Looking ahead Plan now for 2014 Fix your budget Get health coverage settled Watch for extensions of expiring laws Watch for new taxes that could come from the bi-partisan budget committee (report due December 13 but likely to be delayed) Frequently Asked Questions (FAQs) Do phone systems qualify? Yes, Switchvox business phone systems qualify, including the IP PBX, handset phones, routers, etc. However, costs for subscription and maintenance are not included in the Section 179 deduction. Does the equipment have to be installed in the U.S.? Yes, the equipment must be placed into service within the United States. Does my business have to be profitable in 2013? No, even businesses that are not profitable in 2013 qualify for tax deductions. Call us today and get a free consultation on your business phone system needs! Call 256-428-6262 or 1-877-344-4861. Act Now! Acquire and put your business equipment to use before year-end! Interested in learning more? We’ll provide you with a free consultation and extend finance solutions so you can acquire the business equipment you need. Contact us today! Call 256-428-6262 or 1-877-344-4861.
  8. 8. Digium , Inc. ® Digium, Inc. provides Asterisk® software, telephony hardware, and on-premises and hosted Switchvox business phone systems that deliver enterprise-class Unified Communications (UC) and UC as a Service (UCaaS) solutions at an affordable price. A community of more than 80,000 developers and users worldwide uses Asterisk to create VoIP communication solutions in more than 170 countries. Switchvox . Enterprise-class features at a price you can afford. ® Digium is the creator, primary developer and sponsor of the Asterisk project; the world’s most widely used open source communications software. Asterisk turns an ordinary computer into a feature-rich communications server. Since 1999, Digium has empowered developers to create innovative communications solutions based on open standards and open source software, providing an alternative to proprietary phone systems. Digium Switchvox Cloud and other cloud-based products and services are offered through Digium Cloud Services, LLC, a wholly owned subsidiary of Digium, Inc. Digium’s business communications products are sold through a worldwide network of reseller partners. www.digium.com • www.asterisk.org In an effort to provide a similar solution accessible to everyone, Digium offers Switchvox — a full Unified Communications solution, built on the power of Asterisk. Switchvox is a business phone system specifically developed for small- and mid-sized businesses and organizations that want the power of the open source Asterisk solution, but without the need for custom development skills for installation. The advanced features, ease-of-use, and simple out-of-the-box setup make Switchvox an ideal solution for organizations with limited technical staff. A full-featured UC solution, fueled by the innovation of open source technology and open standards, Switchvox allows users to integrate their phone system with their existing networks and get all of the advanced features they need at a price they can afford. Most importantly, by using Asterisk open source software as the foundation for Switchvox, Digium is able to provide a communications system with superior capabilities for a fraction of the cost of proprietary systems. Digium’s Switchvox solution delivers UC features everywhere you need it: on-site, in the cloud, and with mobile. www.digium.com/switchvox
  9. 9. www.digium.com • www.asterisk.org Digium®. We’re changing the way businesses communicate. Founded in 1999, Digium is the creator and primary developer of Asterisk, the industry’s first open source telephony platform. More than one million customers in 125 countries have deployed Asterisk-based systems. Digium is committed to ending the days of expensive, proprietary telecom. The Switchvox family of Unified Communications solutions is built on Asterisk and is designed to provide enterprise class features at affordable prices for small and medium businesses. The award-winning line of Switchvox IP PBX phone systems provides more than a phone system—it delivers a Unified Communications platform that integrates multiple features that increase productivity and lower monthly communication costs. It’s the affordable solution with a proven return on investment for businesses with 10 to 600 users. Learn more at digium.com/switchvox Copyright © 2013 Digium, Inc. All rights reserved. Digium, Asterisk and Switchvox are trademarks of Digium, Inc. All other trademarks are property of their respective owners. 2013 18 Dec. Want more information on Switchvox? Take a virtual tour of this powerful Unified Communications platform: www.digium.com/switchvox Contact us — we’re here to help. Talk with a Switchvox specialist: 1 877 344 4861 1 256 428 6271 sales@digium.com

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