Business Deductions

One of the benefits of setting up an business entity is to take business deductions. Here we describe some of the more common deductions that small business owners take. Please note that you should always check with your certified public accountant before taking any deductions as things can change over time.

Here are some common business deductions:

  1. AUTOMOBILE: Everybody want to write this off. But this deduction can be a red flag at the IRS and is commonly over-deducted. You can only write off that portion of car expenses that equals the portion of use of your car for business purposes versus personal use., If audited you will have to justify that use, whatever it is. Going to and from your office is not business use. Traveling to or for clients is. Keep track of miles with a travel log. This is good record keeping! It will prove invaluable.

There are two methods for calculating the deduction: by mileage or actual expenses. Usually the actual expenses method is the bigger deduction but requires keeping track. You may also be able to depreciate your car and save even more.

  1. HOME OFFICE: You can write-off a portion of your home expenses, like utility bills, if you use a part of your home as an office. As long as you can justify that part of your home is a principal place of business, separate from other parts of the house and you use it regularly and exclusively for business, it’s a deduction. Again, keep all records of your home expenses and give them to your accountant.
  1. EQUIPMENT AND FURNTITURE: Office computers, fax machines, desks and etcetera can be depreciated and deducted. Keep receipts of these purchases and tell your account about them.
  1. RETIREMENT PLANS: Contributions to some retirement plans are tax deductible. LLCs and S-Corps are more limited in the kinds of plans you can contribute to than C-Corporations. But, you can still start retirement! Talk to a financial planner for what is right for you and your type of entity.
  1. START-UP COSTS: You can take deductions for the cost of setting up your business, like legal and accounting fees. There are rules, however.
  1. PROFESSIONAL FEES: Fees paid to accountants, lawyers, consultants or for professional licensing (like the board of realtors) are deductible. So are expenses to keep a professional license (like continuing education).
  1. SUPPLIES: Duh, all office and professional supplies are deductible.
  1. ENTERTAINMENT and MEALS: This is no longer a deduction for most small businesses.
  1. GIFTS: This is another biggie for many small business owners and the IRS. Gifts to clients are 100% deductible. BUT, only up to $25! That’s a big catch! Don’t exceed it!
  1. TRAVEL: Everyone loves this one! Transportation, baggage & shipping, lodging, laundry and things like internet or telephone charges are 100% deductible. Meals are only 50% deductible!—same as entertaining. The IRS assumes you’d have to eat if you were at home, and home-cooked meals are not deductible. You can use the Actual Expense method or the Per Diem method. The Per Diem rates change so make sure you check as you will probably save more with actual expenses. Travel must be for a business purpose! If you’re mixing business and pleasure, then the “primary” purpose of travel must be business (not political, investment or social). If you bring the family, you cannot deduct more than if you had traveled alone! But remember, the family still only needs one car and maybe one room, which you needed anyway! The key here is to legitimize the travel, keep receipts and not be extravagant. You can’t always write off “all of it” so always check with us or your accountant.
  1. HEALTH INSURANCE: Many people forget this one. Health insurance premiums can be 100% deductible. But, the deduction can’t be greater than the businesses net profit AND, if you “could” be covered by a spouse’s insurance program, you cannot claim your own expense. Out of pocket expenses (like your co-pay) are not deductible.
  1. CHARITABLE CONTRIBUTIONS: Well, here the answer is NO. These are not business expenses. Only C-Corporations can donate to charity. BUT, you can deduct these contributions off your PERSONAL income. So, give to charity!
  1. TAXES: Many types of taxes at one level are deductible on another. Make sure your accountant knows what taxes you are paying (like for employees!).
  1. ADVERTISING: Marketing costs are fully deductible. Some types are immediately deductible, others are deducted over years. Even sponsoring a sports team can be deducted! All you need is a “clear business connection” to the advertising.
  2. GENERAL BUSINESS EXPENSE: This is the catch-all. Anything that is ordinary, necessary and primarily for business is a legitimate business expense. Don’t forget things like internet service providers and cell-phones if you need them for business.

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THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. PLEASE CONSULT AN ATTORNEY AND TAX ACCOUNTANT BEFORE MAKING ANY TAX DECISIONS.

Basic Contracting

Contracts are both very simple and extremely complex. Sometimes, that’s just the law!

They are simple in that they can be formed very easily and sometimes without even knowing you’ve formed one. If a neighbor boy comes to your door and says he’ll mow your lawn for $15 and you say, “Great, do it!” You’ve formed a contract and you’ll have to pay him when he’s done. Likewise, if the same boy starts mowing your lawn and you see him and let him continue, you have also formed a contract that he can enforce against you for some kind of payment.

So what constitutes a valid contract? Very simply a contract is formed when there is an offer, an acceptance and consideration. The example above illustrates two kinds of offers: one is explicit (I will mow your lawn for $15), the other is implicit (the action of starting to mow the lawn with you watching). Both are valid offers. The same is true with acceptances. You can say, “Yes” to an offer or by your actions imply that you have accepted it. So you see, it can happen quite easily! Having an offer and an acceptance creates an “agreement.” Whether that agreement is legally binding depends on “consideration.”

Consideration is a legal term which basically means that “something of value” is promised or exchanged in the agreement. The boy commits to mowing your lawn and your promise back to pay him. You’ve exchanged promises that are of value and that “legalizes” the agreement. Usually consideration is not an issue in business contracts (but on rare occasions can be!). The question of consideration is more prevelent when gifts are involved. Lets say your neighbor sees that you have broken your leg and tells her daughter to mow your lawn. The young girl mows your lawn as you watch from your porch with a blanket over your broken leg. Is that a gift? Can the young girl expect to be paid? How is that different than the example where you watch the boy mowing your lawn?

If all three elements (offer, acceptance and consideration) are there, you have a legally binding contract. It’s that simple. But once you start getting into the details about the terms, payments, exceptions, terminations and many other “what if’s,”  contracts can become very complex.

 

ORAL CONTRACTS:

You’ve probably heard that oral contracts are not valid. Right? Wrong! Many oral agreements are legally binding.

In the course of business you will undoubtably encounter numerous situations where you are forming contracts with others. And you might do this without putting anything in writing.

CONTACT TIP: ALWAYS PUT YOUR AGREEMENTS IN WRITING!

Because a contract is formed any time there is an offer, an acceptance and consideration, if you offer to hire someone and they agree, then you may have formed a binding employment contract, even if it’s not in writing. If it’s not in writing, then there will be ambiguity about the terms and conditions. How much am I supposed to pay the boy for mowing my lawn? Confusion about the parties responsibilities always leads to problems and even litigation. Was the boy supposed to trim the edges, too? And litigation (or a negotiated settlement) is ALWAYS more expensive than writing a contract in the first place.

Did we make our point? While some kinds of contracts must be in writing (like contracts to transfer real property), others don’t. So make sure you know what you are doing.

Breglio Law Office provides most contracts that small business owners need at economical pricing. We can also draft contracts to suit your needs and review contracts given to you by other parties. Don’t get stuck out on a limb; make sure you understand your contracts.

TERMINATION: Most contracts either stipulate the way of terminating the arrangement or naturally expire at some occurance (payment and delivery) or time (end of a lease agreement). It can get difficult to get out of contract if there is no termination clause in the agreement itself.

BREACHING CONTRACTS: This is a big topic which we can’t completely cover but whenever you fail to perform a term of the contract you are in breach. Not paying rent when due is a breach of a lease agreement. You are then liable for damages that result from your breach unless you have a valid defense for breaching the contract.

DEFENSES: Sometimes, a breach of a contract won’t result in having to pay damages. In other words, you have a “defense” for your actions. While we won’t go into detail here, some common defenses for breach of contract are: unconscionability (the contract is really unfair or one-sided); mistake (usually only when the mistake is one of both parties); fruad (one side intentionally deceives the other); undue influence (when one side has unfair control over the other); and duress (under some threat of harm).

CONTRACTUAL DAMAGES: In contract law, courts only permit compensatory damages. This generally means that the non-breaching party can be made whole, as if you didn’t breach the contract in the first place. The damage award “compensates” you for whatever you “actually” lost because of the breach. Sometimes, these can be hard to determine. In these cases, some contracts stipulate “liquidated damages.” Liquidated damages are a fixed amount that is written into the contract in the event of a breach.

Instead of having to prove what the value of your losses is, you simply receive the fixed liquidated damage amount. Earnest money on a real estate purchase agreement is an example of liquidated damages. What contract law does NOT provide is punitive damages. Punitive damages are those that are inflicted upon the offending party as “punishment” for their actions. These kinds of damages occur in tort (personal injury) and similar cases. However, in some situations permitted by law, you can receive what is known as “treble damages” in a breach of contract case. In these situations, once the damages amount is determined (the amount to make you whole), it is multiplied by three. This is a form of punitive damages but must be authorized by law.

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THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY BEFORE FORMING ANY CONTRACT.

Intellectual Property

Intellectual property is just that: property created by your intellect, your brain, your creativity, your expression of ideas. It is commonly referred to as IP.

IP encompasses a large area of subjects: a painting you draw, music you compose, a book you write, the name/logo of your business, your catchy ad line to sell your products, and even that better mousetrap you just invented.

The simple IDEA itself is usually not able to be protected. This would stifle others from improving upon an idea already in existance. But, once you express that idea in some form or fashion, then it is protectable. And many business owners do not know that they have valuable intellectual assets that need to be protected.

Breglio Law Office is happy to help you protect all your business assets!

Copyright: Copyright is used to protect what you would consider “artwork” types of intellectual property. This includes music, books, films, paintings and, for small business owners, your logo.

Trademark: Trademarks protect your brand name and possibly your slogan. These are typically just words (and associated logos) that you use in branding your business.

Patent: Patents protect processes, inventions and designs, like software or a new type of wheel.

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Patents

Patent law protects processes, designs, formulas and products (such as a new kind of vacuum cleaner). Patents give the creator the exclusive rights to manufacture and sell the subject of the patent for a fixed number of years. New kinds of drugs are an example of something that is patented.

 

While our office can help you file for copyright and trademark protection, we do not provide patent services. We are always happy to guide you through the initial phases and refer you to one of our legal partners. Please Send Us a Message with further questions as to how we can help you protect your intellectual property.

 

THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY.

Trademarks

Trademark protects a word(s) or phrase (and accompanying graphic image) that are associated with and identify a particular business, group or entity. These are things that are used in branding and marketing. Like copyright, there are some protections as soon as you use your trademark in commerce. But filing both in your state and with the US Trademark Office offers stronger protections because it provides notice of your ownership.

Trademark protections are different than copyright protections and the image used in a trademark can also be copyrighted. An example of trademark is the stylized words “Coca-Cola® ” that appear on the soda can. You will see either the TM or ® symbol next to most trademarks.

You own your trademark and can prevent others from using it, or license it out for a fee. One catch with trademarks, however, is that if you fail to police the use of your trademark, you can lose it. That is, if others are using your mark without your permission, and you don’t stop them, you can lose mark.

You are always allowed to use the TM symbol next to your mark to identify it as your trademark. However, you can only use the ® symbol if you’ve registered the mark with the US Patent and Trademark Office.

THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY.

Copyrights

Copyright protects words, music, images, sounds, books, recordings, paintings, graphics and other similar products that the owner of the copyright creates. Essentially, anything that a person can devise in his or her head and then put down in a tangible form can be copyrighted. Note that it must be in a tangible form (a recording of music, words on paper, paint on canvas) before it can be copyrighted. Copyright does NOT protect the idea for the work while it’s still in your head.

Copyright does protect you from unauthorized use or copying of the work you created. There are protections that kick in as soon as you put that idea down in tangible form. However, filing with the US Copyright Office and state offices offers additional protections, puts the world on notice that you own the work and makes it easier to claim damages when someone uses your work without your permission. An example is the newest song by a pop recording artist that you hear on the radio. The song is copyrighted and the radio station has permission to play it. You will often see the © symbol next to the image.

There are five basic rights in copyright. That is the right to…

  1. Distribute: This is the exclusive right to market and sell your intellectual property.
  1. Copy: This is the exclusive right to make copies of the work.
  1. Perform: This is the exclusive right to publicly perform your work (showing a movie in a theater).
  1. Display: This is the exclusive right to display your work (hanging your painting in a gallery).
  1. Create derivative works: This is the exclusive right to create adaptions of your work (translating your book into another language or into a screenplay).

You also have the right to assign or grant these rights to others. Such is the case when you assign the publishing (distribution) rights to a publisher in order to print and sell your book. You can pick and choose which rights you assign away or keep to yourself.

You ARE allowed to use the © symbol without registering your work with the US Copyright Office. You should always use it with the year that you first put the work out to the public.

The digital world has thrown a few wrenches into the system and the laws are struggling to keep up.

THIS INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE. PLEASE CONSULT AN ATTORNEY.

The Real Estate Business

The 2-hour VIDEO of a live class explores the business side of being in real estate. It covers from the different ways of making money in real estate and their taxation to their corporate structure to payroll to marketing and branding. This is “must-see” video for anyone thinking about getting into real estate investment.

PART 1

PART 2

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Corporate Succession

The VIDEO explains the need to plan for the future even with your LLC. Corporate succession is planning for what might happen to the members and managers in the future, whether that be death, incapacity, or possibly just wanting out of the company. There are numerous ways to plan for these eventualities as you will learn in this webinar.

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