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TAX BREAKS FOR YOUby
Carolyn Burch, EA One of the big wins for franchisees this year is the change in the Internal Revenue Service (IRS) Code Section 179 deduction. In the past the maximum section 179 deduction had been just $10,000; then it was increased to $24,000. As of January 1, 2003, however, any purchases of personal property for the years 2003-2005 used in business was increased to $100,000. In addition, the phase out period has increased. In the past, if you purchased more the $200,000 in equipment the amount phased out. The phase out figure has now been increased to $400,000. What this means is that more equipment can be written off in the year of the expense. For example, if you purchased $400,500 in eligible equipment, with the phase out, instead of not being allowed any deductions, you can now deduct $99,500. For those franchisees making large equipment purchases or purchasing equipment for several stores, this will be very helpful. Another bit of interesting news is that the law now includes in the definition of “eligible” property off the shelf computer software. This was not allowed in the past. The IRS also released Revenue Procedures (“Rev. Proc.”) 2003-75 providing depreciation limitations for passenger automobiles, vans, and trucks. The big news is that trucks and vans (including minivans and SUVs built on a truck chassis) now have different depreciation limitations from passenger vehicles. This gives a good option for the franchisee to take the regular depreciation on a van instead of writing off the whole cost as a 179 deduction. Regular depreciation gives some deduction in all years used up to five years--not just the write off in the year placed in service. The new deprecation limits for trucks and vans are--first year regular depreciation $3,360 plus a 30% bonus $7,960. There’s a 50% bonus if the vehicle was acquired after 5/5/03. In the second year you can depreciate $5,400, in the third year $3,250 and in subsequent years you can depreciate $1,975. All these amounts are larger than passenger autos. If you keep track of actual expenses then you’ll need to keep records of your expenses separate for the business’ vehicle and all personal vehicles. I recommend using separate charge cards for business and personal vehicular expenses like gas and oil. Keep both the business and personal statements on hand to have accurate records of both your business and personal expenses. Keeping good records is important to paying lowest amount of tax and to ensure a no change audit. In a recent tax court case William M. Hawkins et ux. V. Commissioner a couple was required to pay thousands of dollars in additional tax plus underpayment and negligence penalties. The taxpayer simply could not substantiate or differentiate their business and personal expenditures. The IRS doesn’t like that!
"DO NOT CALL" REGULATIONSAt least two-thirds of the United States and the federal government have Do Not Call (DNC) regulations in place as of January 1, 2004. DNC laws regulate the ability to solicit clients / customers. Each state’s rules reign supreme within its borders regarding calling practices and exceptions unless the new federal rules are stricter. The DNC rules establish acceptable calling practices such as:
The federal fine is $11,000 per call. In addition, many states have a state fine, some of which are as high as $25,000 per call for a total of $36,000 per call. Federal rules for clients not on the above “do not call” list require no calls before 8:00 AM or after 9:00 PM. Many states are more restrictive than the federal rule and do not allow calls on Sunday. To call a client and be in compliance with the federal rules you must have made a sale in the past 18 months. Many states are even more restrictive. For example, in Mississippi you must have had a sale to that client in the last 165 days; in California you must have had a sale in the last 350 days. This means if you are a vision care service, tax service, or any other service in which you call clients to remind them it is time for a visit to your office you need to know the DNC rules in your state. For more information check out www.donotcall.gov. For more information about tax law changes or other tax questions email the author, H & R Block Franchise Owner Carolyn Burch, EA at cburch@hrblock.com. Carolyn also serves on the AFA Board of Directors.
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AFA Enews - January 14, 2004 - Volume 2 Number 1 |
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American Franchisee Association |
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(312) 431-0545 |
