Mistake, Mistake, Mistake

Here is an example of a classic small business mistake I saw coming down the track.

 

A young girl, following her dream, ran right into a stone wall. It is not that she was young or a girl that mattered here. It simply was that her dream clouded her view of reality.

 

It is not clear to me if she had prior experience in her chosen field. If she did it would have reflected itself in the quality she provided, which I did not see, and I am not sure anyone had the opportunity to experience in her new business.

 

She appeared to begin her business with an investment in a one year lease and additional expenses improving the leased property. After a month of work on the property, about two weeks prior to opening the business a sign appeared in the window announcing the date of opening of her YOGA studio and classes.

 

At no time that the business operated did she have more than four people show up, and that happened only one time. After about three months the business was shuttered, and the landlord was seeking another tenant.

 

So what did I see that she missed? First, there were four competing operations within walking distance. Second, she could not provide free parking for her clients. Third, her competitors were on main streets, her business was not, Fourth there appeared to be no competitive advantage offered.

 

The key learning from this example is to study, study, study. Study the competitive situation. Study the location. Keep on top of your situation.

 

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

Leasing a Car In Your Business

 

If you lease a vehicle that you use in your trade or business, you can use the standard mileage rate or actual expenses to figure your deductible expenses.

If you use the standard mileage rate method, the following applies:

You must use this method over the entire lease term.

You figure your deduction by multiplying the number of business miles times the standard mileage rate for the particular year.

You cannot deduct any other expenses except business-related parking and road tolls.

If you use the actual expense method, the following applies:

You can deduct the part of each lease payment that is for the business use of the car in your business.

You must spread any advance lease payments over the entire lease term.

If you lease a car for 30-days or more, you may have to reduce your lease payments deduction by an “inclusion amount” each year.

You can deduct your other car expenses by the business percentage use of the car each year.

You cannot claim depreciation.

Proper record-keeping is required to document and substantiate your auto expenses.

 

This article was written by Donald M. Scherzi, CPA, CFP, LLC

Mike Lupo, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

 

 

 

 

Horror over the Air

Here is a story with a message for all businesses.

 

A cell phone senior citizen customer went to a retail distributor for a major cell phone carrier, with a request to repair a power cord connector on a “flip” phone. It seems the plug could not be inserted in that particular phone, while it functioned fine on another phone in the household. The store representative stated that the connector was damaged beyond repair and, proceeded to “up-sell” the customer to two “smart phones” in the household. The sale included the ability to rescind within 14 days.

 

Within 2 days the customer retuned to the distributor and wanted to rescind the sale because the new phones increased the monthly charges approximately four times over those preciously paid, without much added value, based on past use. The distributor rescinded the sale, returned two new “flip” phones, and recorded new “flip” phone sales on the cell phone company records. He could have simply reinitiated the original service the customer had. In addition to selling something with limited customer value, recording a “new” sale is a major source of the issues here. A new sale started a new two year contract!

 

Over that two year period the customer attempted to upgrade to more expensive “smart” phones on multiple occasions with the same service provider, each time being told by the service provider that this could not be done until the two year contract period expired. Now, here was a company turning away the opportunity to increase revenue from a customer. Smart???

 

As the contract termination period approached, the customer requested that the service provider remove the exorbitant cancellation fee for the last 30 days of the contract, and was refused.

 

By the way, the original “flip” phone problem was repaired with a slight bit of pressure of a screw driver.

 

Here was a customer that was now committed to leave this service provider, and never do business with the distributor again!!! Their friends, family and acquaintances are hearing this story as well!!!

 

A lot to learn from this example. How does your business compare?

 

 

Steve Koenig, SCORE Counselor

Visit us at: www.scoresouthflorida.net

 

 

 

 

Actual Expense Method for Business Use of a Vehicle

 

Choosing the Actual Expense Method

 

If you do not choose the standard mileage rate method, you can chooses the actual expense method for the business use of your vehicle.

 

Under this method, you can deduct the business use percentage of your various automobile expenses.

 

To figure your business use percentage, simply divide the number of business miles by the total mileage for the year.

 

Actual Car Expenses Include

 

Depreciation

Gas

Garage Rent

Insurance

Lease Payments

Licenses

Maintenance

Oil

Parking Fees

Registration Fees

Repairs

Road Tolls

Tires

 

Interest Expense

 

If you are an employee, you cannot deduct any interest paid on the car.

 

Taxes Paid On The Car

 

If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions on Schedule A (Form1040).

 

 

 

Depreciation, Special Allowance, Section #179 Deduction.

 

Under the actual expense method, you can recover the (business use percentage) cost of your vehicle by depreciation each year.

 

Generally, there are annual limits (on the combined Section #179 Deduction, Special Depreciation Allowance Deduction, and Regular MACRS Depreciation Deduction) shown in the applicable IRS Tables.

 

The depreciation limits are not reduced if you use your care for less than a full year.

 

The depreciation limits are reduced if your business use of the car is less than 100%.

 

MACRS Depreciation Methods are used to figure depreciation on vehicles:

 

            Passenger Vehicles are under the Listed Property category

 

            Must use your care more that 50% for business each year.

 

            3 Depreciation Options:

• 200% DB/HY Convention/5 year recovery period
• 150% DB/HY Convention/5 year recovery period
• Straight Line/5 year recovery period
   
                                                              Section #179
   
• Section #179 must be claimed only in the year you place the car in service.
• You must use the car more than 50% for business.
   
                                                              Special Depreciation Allowance
   
• Amount allowed per year is based on annual IRS rules.
   
  To figure depreciation, your need to know the following:
   
• Your basis in the car
• The date the car was placed in service
• The depreciation method and recovery period you will use.
   
  Basis:
   
  Is generally the cost of the car (this includes any amount borrow or pay in cash, other property, and services)
             
  Placed In Service:
   
  Depreciation begins when you place your car in service (when it is available for use in your business).
   
  Method of Depreciation:
   
  See above for the various methods.
   
  Business Use Percentage:
   
  You need to keep written mileage logs of the total mileage and the total business mileage for the vehicle each year.
   
   
  Tax Tip:
   
  Claiming business use of an auto requires detailed record-keeping that documents and substantiates to the IRS should an audit occur. It can be an audit target as it is prone to abuse. With proper records, you can feel confident you will prevail should the IRS question your tax return.
   
   
  This article was written by Donald M. Scherzi, CPA, CFP, LLC
  Mike Lupo, SCORE Counselor
  Visit us at: www.scoresouthflorida.net