Is my mileage for my volunteer work a tax deduction?
ANSWER:
If you don’t receive compensation or reimbursement for volunteer driving, you can deduct 14 cents per mile in 2023 or actual expenses for gas and oil. You can’t deduct general repairs and maintenance, insurance, or licensing fees.
You can also deduct any parking or tolls incurred while volunteering, whether you use the actual expenses or the standard mileage rate.
Be sure to keep contemporaneous records of all miles you drive while volunteering. If the charity reimburses you for gas and use of your personal vehicle, any amount received above 14 cents per mile is taxable income to you.
Using new technology to report and track employee business expenses can be easier and more accurate.
MODERNIZE REPORTING
Instead of using paper to report employee’s expenses you can simplify the process with a virtual expense reporting system that lets employees photograph and submit receipts from an app. This prevents the need for your accounting staff to keep paper files or scan receipts.
ESTABLISH ACCOUNTABILITY
Inform managers and supervisors about the company’s expense policies so they can hold their teams responsible for following them. To ensure high levels of accountability in this area, give managers an easy way to access to approve submitted expenses on their employees’ expense reports.
TIME IS VITAL
No one wants to pay $1,000 in travel costs out-of-pocket for a business trip and then wait for weeks while those expenses are reviewed, approved, and reimbursed. To avoid delays, create service-level timeframes that work for both the company and employees. For example, make clear that associates must submit their expense reports by “X” day of the month, with complete required documentation, to receive reimbursement by “Y” day.
Proactive processes can help protect your company and its cash flow.
PREPARATION
Complete some due diligence before you decide to work with a client. Basic internet research for reviews can show how well the company is managed.
And when you start a contract with a customer, ensure that invoicing and payment details are provided. Spell out how you invoice and payment due dates so there’s no confusion. Be clear on what payment methods you accept and what your late payment policy is.
FOLLOW UP
If your client has a missed a payment due date, follow up immediately with a polite email reminder. And if you have contact information for the accounts payable department, reach out to them, as they will generally know why your invoice is unpaid. It could be that they’re waiting on approvals or missing information.
If the client continues to be delinquent despite your follow up efforts, perhaps you should stop providing products or services until you’re paid in full.
Kristen owns a small pet-sitting business and is concerned about inflation impacting her company’s finances. What are some things she can do to help alleviate the pressure inflation is having on her business?
Reducing expenses is the first step to protect her business against price increases. Kristen should also send out invoices immediately after she completes a project and not wait to invoice at the end of the month. And along the same lines, keep on top of receivables. Don’t let customers continue to book services without paying for previous work. And better yet, she should require immediate payment, either at the time of booking or after an assignment. The sooner she can get paid, the more spending power that money will have.
If Kristen can stock up on critical supplies like leashes, treats, or pet waste bags, she can lock in current costs and avoid future price increases.
And she should work toward engaging in more lucrative assignments.
Client Profile is based on a hypothetical situation. The solutions discussed may or may not be appropriate for you.
What if you decide to, or are asked to, guarantee a loan to your corporation? Before agreeing to act as a guarantor, endorser or indemnitor of a debt obligation of your closely held corporation, be aware of the possible tax consequences. If your corporation defaults on the loan and you’re required to pay principal or interest under the guarantee agreement, you don’t want to be blindsided.
Business vs. nonbusiness
If you’re compelled to make good on the obligation, the payment of principal or interest in discharge of the obligation generally results in a bad debt deduction. This may be either a business or a nonbusiness bad debt deduction. If it’s a business bad debt, it’s deductible against ordinary income. A business bad debt can be either totally or partly worthless. If it’s a nonbusiness bad debt, it’s deductible as a short-term capital loss, which is subject to certain limitations on deductions of capital losses. A nonbusiness bad debt is deductible only if it’s totally worthless.
In order to be treated as a business bad debt, the guarantee must be closely related to your trade or business. If the reason for guaranteeing the corporation loan is to protect your job, the guarantee is considered closely related to your trade or business as an employee. But employment must be the dominant motive. If your annual salary exceeds your investment in the corporation, this tends to show that the dominant motive for the guarantee was to protect your job. On the other hand, if your investment in the corporation substantially exceeds your annual salary, that’s evidence that the guarantee was primarily to protect your investment rather than your job.
Except in the case of job guarantees, it may be difficult to show the guarantee was closely related to your trade or business. You’d have to show that the guarantee was related to your business as a promoter, or that the guarantee was related to some other trade or business separately carried on by you.
If the reason for guaranteeing your corporation’s loan isn’t closely related to your trade or business and you’re required to pay off the loan, you can take a nonbusiness bad debt deduction if you show that your reason for the guarantee was to protect your investment, or you entered the guarantee transaction with a profit motive.
In addition to satisfying the above requirements, a business or nonbusiness bad debt is deductible only if:
You have a legal duty to make the guaranty payment, although there’s no requirement that a legal action be brought against you;
The guaranty agreement was entered into before the debt becomes worthless; and
You received reasonable consideration (not necessarily cash or property) for entering into the guaranty agreement.
Any payment you make on a loan you guaranteed is deductible as a bad debt in the year you make it, unless the agreement (or local law) provides for a right of subrogation against the corporation. If you have this right, or some other right to demand payment from the corporation, you can’t take a bad debt deduction until the rights become partly or totally worthless.
These are only a few of the possible tax consequences of guaranteeing a loan to your closely held corporation. Contact us to learn all the implications in your situation.
Are you a business owner thinking about hiring? Be aware that a recent law extended a credit for hiring individuals from one or more targeted groups. Employers can qualify for a tax credit known as the Work Opportunity Tax Credit (WOTC) that’s worth as much as $2,400 for each eligible employee ($4,800, $5,600 and $9,600 for certain veterans and $9,000 for “long-term family assistance recipients”). The credit is generally limited to eligible employees who began work for the employer before January 1, 2026.
Generally, an employer is eligible for the credit only for qualified wages paid to members of a targeted group. These groups are:
Qualified members of families receiving assistance under the Temporary Assistance for Needy Families (TANF) program,
Qualified veterans,
Qualified ex-felons,
Designated community residents,
Vocational rehabilitation referrals,
Qualified summer youth employees,
Qualified members of families in the Supplemental Nutritional Assistance Program (SNAP),
Qualified Supplemental Security Income recipients,
Long-term family assistance recipients, and
Long-term unemployed individuals.
You must meet certain requirements
There are a number of requirements to qualify for the credit. For example, for each employee, there’s also a minimum requirement that the employee must have completed at least 120 hours of service for the employer. Also, the credit isn’t available for certain employees who are related to or who previously worked for the employer.
There are different rules and credit amounts for certain employees. The maximum credit available for the first-year wages is $2,400 for each employee, $4,000 for long-term family assistance recipients, and $4,800, $5,600 or $9,600 for certain veterans. Additionally, for long-term family assistance recipients, there’s a 50% credit for up to $10,000 of second-year wages, resulting in a total maximum credit, over two years, of $9,000.
For summer youth employees, the wages must be paid for services performed during any 90-day period between May 1 and September 15. The maximum WOTC credit available for summer youth employees is $1,200 per employee.
A valuable credit
There are additional rules and requirements. In some cases, employers may elect not to claim the WOTC. And in limited circumstances, the rules may prohibit the credit or require an allocation of it. However, for most employers hiring from targeted groups, the credit can be valuable. Contact us with questions or for more information about your situation.
Break-even point word with green checkmark, 3D rendering
Breakeven analysis can be useful when investing in new equipment, launching a new product or analyzing the effects of a cost reduction plan. During the COVID-19 pandemic, however, many struggling companies are using it to evaluate how much longer they can afford to keep their doors open.
Fixed vs. variable costs
Breakeven can be explained in a few different ways using information from your company’s income statement. It’s the point at which total sales are equal to total expenses. More specifically, it’s where net income is equal to zero and sales are equal to variable costs plus fixed costs.
To calculate your breakeven point, you need to understand a few terms:
Fixed expenses. These are the expenses that remain relatively unchanged with changes in your business volume. Examples include rent, property taxes, salaries and insurance.
Variable/semi-fixed expenses. Your sales volume determines the ebb and flow of these expenses. If you had no sales revenue, you’d have no variable expenses and your semifixed expenses would be lower. Examples are shipping costs, materials, supplies and independent contractor fees.
Breakeven formula
The basic formula for calculating the breakeven point is:
Breakeven can be computed on various levels. For example, you can estimate it for your company overall or by product line or division, as long as you have requisite sales and cost data broken down.
To illustrate how this formula works, let’s suppose ABC Company generates $24 million in revenue, has fixed costs of $2 million and variable costs of $21.6 million. Here’s how those numbers fit into the breakeven formula:
Annual breakeven = $2 million / [1 – ($21.6 million / $24 million)] = $20 million
Monthly breakeven = $20 million / 12 = $1,666,667
As long as expenses stay within budget, the breakeven point will be reliable. In the example, variable expenses must remain at 90% of revenue and fixed expenses must stay at $2 million. If either of these variables changes, the breakeven point will change.
Lowering your breakeven
During the COVID-19 pandemic, distressed companies may have taken measures to reduce their breakeven points. One solution is to convert as many fixed costs into variable costs as possible. Another solution involves cost cutting measures, such as carrying less inventory and furloughing workers. You also might consider refinancing debt to take advantage of today’s low interest rates and renegotiating key contracts with lessors, insurance providers and suppliers. Contact us to help you work through the calculations and find a balance between variable and fixed costs that suits your company’s current needs.
