Even though summer is still somewhat in full swing, school will be starting soon. Yes, you heard that right. This means that you probably need to get prepared for the inevitable cash outlay ahead. But it doesn’t have to cost an arm and a leg. Here are some ways to navigate the upcoming expenditures and save a penny or two.
Start Early
We’re talking a few weeks ahead, if possible. If you wait until the last minute, supplies might run out. You may have to spend time online searching and/or driving from store to store – and paying the premium both in terms of products and gas. If you spread out purchases a little at a time, you won’t feel the financial hit so severely. Dive in early and you’ll thank yourself when it’s all over.
Conduct a Supply Audit
Dig into those drawers, closets and storage bins for school supplies from last year. Chances are, you bought a set of, say, pencils and all are not used. When you’re done, put what you’ve found in a central location and make your shopping list. Be sure to keep this list handy (on your phone, or in your bag if you’ve handwritten it). Another way to keep track of what you already have is to snap a pic of it.
Swap With Friends
Do this before you spend any money. Organize a small gathering with other parents, trade your wares, figure out what you need, then get going.
Head to the Dollar Store
After you’ve audited and swapped, check out these bargain basement stores. Here, you’ll find big savings on basics like notebooks, pencils, plus hand sanitizer and facial tissues.
Scour Thrift Stores
While thrift stores might not have supplies in terms of schoolwork, they’ll definitely have back-to-school clothes you can buy for a song – aka pretty darn cheap. You might look for backpacks here, too, which are a must-have. Tip: Don’t let your kiddos wear their new duds immediately. Save them for the first day (and days after) so they’ll feel like they’re starting the new year with a 100 percent fresh start.
Shop on a Sales Tax Holiday
Lots of states have these and during this time (or day or weekend), you can buy computers, clothing and school supplies without paying sales tax. Here’s a state sales tax holiday list for you.
Follow Popular Stores on Social Media
Many companies send their followers coupon links and advance notice about juicy sales. Several to watch on Facebook and Twitter are Staples, Office Depot, Target, Best Buy, as well as Coupons.com and RetailMeNot.
Make One Trek Solo
While taking the kiddos along can be fun and a great bonding experience, chances are they’ll plop things in your cart you might not want – and run up the bill. By yourself, you can get in and out quickly and control the cost.
Going back to school can be a challenging transition, both for kids and parents. However, if you plan ahead and stay on track, you can give yourself an A+ for all you’ve accomplished.
Even though summer is still somewhat in full swing, school will be starting soon. Yes, you heard that right. This means that you probably need to get prepared for the inevitable cash outlay ahead. But it doesn’t have to cost an arm and a leg. Here are some ways to navigate the upcoming expenditures and save a penny or two.
Start Early
We’re talking a few weeks ahead, if possible. If you wait until the last minute, supplies might run out. You may have to spend time online searching and/or driving from store to store – and paying the premium both in terms of products and gas. If you spread out purchases a little at a time, you won’t feel the financial hit so severely. Dive in early and you’ll thank yourself when it’s all over.
Conduct a Supply Audit
Dig into those drawers, closets and storage bins for school supplies from last year. Chances are, you bought a set of, say, pencils and all are not used. When you’re done, put what you’ve found in a central location and make your shopping list. Be sure to keep this list handy (on your phone, or in your bag if you’ve handwritten it). Another way to keep track of what you already have is to snap a pic of it.
Swap With Friends
Do this before you spend any money. Organize a small gathering with other parents, trade your wares, figure out what you need, then get going.
Head to the Dollar Store
After you’ve audited and swapped, check out these bargain basement stores. Here, you’ll find big savings on basics like notebooks, pencils, plus hand sanitizer and facial tissues.
Scour Thrift Stores
While thrift stores might not have supplies in terms of schoolwork, they’ll definitely have back-to-school clothes you can buy for a song – aka pretty darn cheap. You might look for backpacks here, too, which are a must-have. Tip: Don’t let your kiddos wear their new duds immediately. Save them for the first day (and days after) so they’ll feel like they’re starting the new year with a 100 percent fresh start.
Shop on a Sales Tax Holiday
Lots of states have these and during this time (or day or weekend), you can buy computers, clothing and school supplies without paying sales tax. Here’s a state sales tax holiday list for you.
Follow Popular Stores on Social Media
Many companies send their followers coupon links and advance notice about juicy sales. Several to watch on Facebook and Twitter are Staples, Office Depot, Target, Best Buy, as well as Coupons.com and RetailMeNot.
Make One Trek Solo
While taking the kiddos along can be fun and a great bonding experience, chances are they’ll plop things in your cart you might not want – and run up the bill. By yourself, you can get in and out quickly and control the cost.
Going back to school can be a challenging transition, both for kids and parents. However, if you plan ahead and stay on track, you can give yourself an A+ for all you’ve accomplished.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
Despite borrowing massive amounts of money, the government still needs to find ways to raise revenue to pay for new programs and spending. The current democratically controlled Congress is looking to potentially implement new social programs and a climate bill. As a way of funding these initiatives, they are considering an expansion of the Net Investment Income Tax (NIIT).
The NIIT is proposed to raise revenue since it is seen as politically more palatable, given that it typically only impacts a small group of wealthier taxpayers. Critics, however, say the plan in its current form would also hurt small family businesses.
Who Pays NIIT Now?
Under the Affordable Care Act (ACA), the NIIT applied a 3.8 percent tax on investment income. Investment income includes both passive sources like dividends, capital gains, interest, royalties, and rents as well as passive business income. Under the ACA, the NIIT applied only to single taxpayers earning $200k or more and joint filers with $250k or more.
When it comes to the taxability of business income under the NIIT, because the law only captures passive business income, most owners of pass-through entities must pay the NIIT; however, active owners of S-corporations are exempt. Likewise, if someone qualifies as a real estate professional, their income is considered active and so their rental income is also exempt.
Who Would Pay Under the New Proposed Law?
The current version of the House bill makes two major changes. First, the NIIT expands to capture all business income. Essentially, S-corporation shareholders, limited partners, and pass-through entity owners that are currently exempt would be impacted.
Second, when it comes to removing the exemption on this business income, the income threshold rises from $200k to $400k for single filers and from $250k to $500k for taxpayers filing jointly. The effect of this would be to exclude most business owners from the tax, but make filing more complex for those impacted.
Under the new rules, the Tax Policy Center projects that in 2023 the tax hike would fall on those in the top 1 percent of household incomes or those making approximately $885k or more. Further, even among the top 1 percent, more than 50 percent of the tax increase would be borne by the top 0.1 percent for those making $4 million and up.
Impact No Small Businesses
Overall, about 14 percent of taxpayers report some form of business income on their federal tax returns. The amount reported, however, is usually not a material amount for most as a percentage of their income. For example, only approximately 5.5 percent of taxpayers with reported business income had this as the source of 50 percent or more of their total income. As a result, the impact will be mostly on a small percentage of small businesses. At the same time, as business income is far more variable than employment income, someone could easily fall in and out of the tax range.
Conclusion
Overall, the House bill looks to raise the threshold of where the NIIT expansion applies by the type of income it captures. We will have to wait and see if there are changes as the bill makes its way through – if it even passes at all. No matter what happens, there will certainly be tax increases of some kind.
Expanding the Net Investment Income Tax
August 1, 2022 · Blog, Tax and Financial News
⏱ 3 min read
Despite borrowing massive amounts of money, the government still needs to find ways to raise revenue to pay for new programs and spending. The current democratically controlled Congress is looking to potentially implement new social programs and a climate bill. As a way of funding these initiatives, they are considering an expansion of the Net Investment Income Tax (NIIT).
The NIIT is proposed to raise revenue since it is seen as politically more palatable, given that it typically only impacts a small group of wealthier taxpayers. Critics, however, say the plan in its current form would also hurt small family businesses.
Who Pays NIIT Now?
Under the Affordable Care Act (ACA), the NIIT applied a 3.8 percent tax on investment income. Investment income includes both passive sources like dividends, capital gains, interest, royalties, and rents as well as passive business income. Under the ACA, the NIIT applied only to single taxpayers earning $200k or more and joint filers with $250k or more.
When it comes to the taxability of business income under the NIIT, because the law only captures passive business income, most owners of pass-through entities must pay the NIIT; however, active owners of S-corporations are exempt. Likewise, if someone qualifies as a real estate professional, their income is considered active and so their rental income is also exempt.
Who Would Pay Under the New Proposed Law?
The current version of the House bill makes two major changes. First, the NIIT expands to capture all business income. Essentially, S-corporation shareholders, limited partners, and pass-through entity owners that are currently exempt would be impacted.
Second, when it comes to removing the exemption on this business income, the income threshold rises from $200k to $400k for single filers and from $250k to $500k for taxpayers filing jointly. The effect of this would be to exclude most business owners from the tax, but make filing more complex for those impacted.
Under the new rules, the Tax Policy Center projects that in 2023 the tax hike would fall on those in the top 1 percent of household incomes or those making approximately $885k or more. Further, even among the top 1 percent, more than 50 percent of the tax increase would be borne by the top 0.1 percent for those making $4 million and up.
Impact No Small Businesses
Overall, about 14 percent of taxpayers report some form of business income on their federal tax returns. The amount reported, however, is usually not a material amount for most as a percentage of their income. For example, only approximately 5.5 percent of taxpayers with reported business income had this as the source of 50 percent or more of their total income. As a result, the impact will be mostly on a small percentage of small businesses. At the same time, as business income is far more variable than employment income, someone could easily fall in and out of the tax range.
Conclusion
Overall, the House bill looks to raise the threshold of where the NIIT expansion applies by the type of income it captures. We will have to wait and see if there are changes as the bill makes its way through – if it even passes at all. No matter what happens, there will certainly be tax increases of some kind.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
Depreciation is the accounting concept that evaluates an asset’s useful life. As the Internal Revenue Service explains, depreciable property – which could include equipment, structures, means of transportation, fixtures, etc. – is examined to see how many years the purchase price can be averaged and “deducted from taxable income.” This is in contrast to “full expensing,” which allows companies to write off investments straight away. For dual use property (personal and commercial), only the proportion of property that’s used for business may be depreciated. Property eligible for depreciation must be owned by the business, be used for business purposes/income-producing activity, and have a determinable useful life.
1. Straight Line Depreciation Method
This method of depreciation determines a constant amount to expense annually over the useful life of the property. It’s calculated as follows, with the following example circumstances assumed:
Machinery costing $50,000 with a life of 12 years and $2,500 in salvage value.
= (Cost – Salvage Value) / Useful life
= ($50,000 – $2,500) / 12
= $47,500 / 12
= $3,958.33
Considerations
When implementing this method of depreciation, if the asset’s useful life and salvage value is assumed incorrectly, it could skew results. For assets that become outdated prematurely and/or require higher maintenance costs toward the end of its useful life, this method can lead to improper results.
2. Double Declining Balance Depreciation Method
This method, generally speaking, is double that of the straight-line rate.
Annual Depreciation Rate = (100% / Useful life of asset) x 2
Annual Depreciation Rate = (100% / 10) x 2 = 20%
Let’s assume that property, plant and equipment (PP&E) costs $75,000, will produce for 10 years and have a salvage value of $6,000.
From there, we work to establish the Periodic Depreciation Expense (PDE) = Beginning Book Value x Rate of Depreciation
Using the formula for PDE, we get: $75,000 x 0.20 (20 percent) = $ 15,000 for the first year’s depreciation expense.
Then, the first year’s depreciation expense is subtracted from the item’s beginning book value. Ending Book Value = $75,000 – $15,000 = $60,000
To determine each subsequent year’s ending book value, it begins with last year’s ending book value minus the newly calculated annual depreciation expense.
Year 2 Calculation for Ending Book Value: $60,000 – ($60,000 x 0.20 = $12,000) = $48,000
Considerations
This method expenses a greater proportion in the earlier years compared to the later years. This is attributable to assets that produce more for a business in their earlier years compared to later years. This method can help businesses depreciate items that lose value quickly, such as electronics, and similar items that become obsolete due to improving technology. It’s not necessarily double or 200 percent of the straight-line rate. It could be more or less than double of the straight-line rate. However, the double depreciation rate does remain constant over the depreciation process.
3. Units of Production Depreciation Method
This takes either the amount of discrete time utilized for production or the tally of items to be manufactured with the production equipment subject to depreciation. It’s calculated as follows:
Depreciation Expense = ((Cost – Salvage value) / (Life in Number of Units)) x Number of Units Produced During Accounting Time Frame.
Let’s assume a piece of equipment costs $100,000, has a projected lifetime production ability of 150 million widgets and will salvage for $10,000. It’s projected to create an output of 25 million widgets within the accounting year.
Depreciation Expense = (($100,000 – $10,000) / (150 million)) x 25 million
= (($90,000) / (150 million)) x 25 million
= 0.0006 (unit) x 25 million
= $15,000
Considerations
This method can help businesses such as manufacturers that produce discrete items that can be counted and expensed per piece. Depreciation starts when the manufacturer begins to make items and stops when the unit has produced all of its life’s items within a pre-defined time frame.
4. Sum-of-the-Years Digits Depreciation Method
It’s calculated as follows:
Remaining Life (RL) of an asset is divided by the sum of the years digits (SYD) x Depreciation Base. The Depreciation Base = (Cost – Salvage Value)
Assuming there are equipment costs of $50,000, with a useful life of 12 years and a salvage value of $3,500. Depreciation Base = $50,000 – $3,500 = $46,500
RL = the remaining life of the asset. When the item starts running, it will have 12 years of a remaining life. One year later, or 12 months after usage began, the asset will have 11 years remaining, and so on. For an item with 12 years of useful life, it will be “the sum of the years” or 1+2+3+4+5+6+7+8+9+10+11+12.
The first year of use or the item’s Remaining Life will be 12 / 78 = 0.1538. Then 0.1538 x $46,500 = $7,153.85.
Year 2 would be calculated as 11 / 78 = 0.1410. Then 0.1410 X $46,500 = $6,557.69.
Considerations
This method is another way to speed up the percentage of depreciation sooner, instead of toward the end of the asset’s useful life. The longer the asset is used, the less the asset provides utility to the business. Therefore, it helps businesses take advantage of depreciation sooner. It’s a trade-off for items that require more maintenance as time goes on, as the item’s value drops inversely.
Conclusion
Depending on the type of business and what it produces or provides as a service, understanding how depreciation works can give an accurate picture of the company’s finances and help navigate tax laws efficiently.
4 Common Depreciation Methods and Their Uses
August 1, 2022 · Accounting News, Blog
⏱ 5 min read
Depreciation is the accounting concept that evaluates an asset’s useful life. As the Internal Revenue Service explains, depreciable property – which could include equipment, structures, means of transportation, fixtures, etc. – is examined to see how many years the purchase price can be averaged and “deducted from taxable income.” This is in contrast to “full expensing,” which allows companies to write off investments straight away. For dual use property (personal and commercial), only the proportion of property that’s used for business may be depreciated. Property eligible for depreciation must be owned by the business, be used for business purposes/income-producing activity, and have a determinable useful life.
1. Straight Line Depreciation Method
This method of depreciation determines a constant amount to expense annually over the useful life of the property. It’s calculated as follows, with the following example circumstances assumed:
Machinery costing $50,000 with a life of 12 years and $2,500 in salvage value.
= (Cost – Salvage Value) / Useful life
= ($50,000 – $2,500) / 12
= $47,500 / 12
= $3,958.33
Considerations
When implementing this method of depreciation, if the asset’s useful life and salvage value is assumed incorrectly, it could skew results. For assets that become outdated prematurely and/or require higher maintenance costs toward the end of its useful life, this method can lead to improper results.
2. Double Declining Balance Depreciation Method
This method, generally speaking, is double that of the straight-line rate.
Annual Depreciation Rate = (100% / Useful life of asset) x 2
Annual Depreciation Rate = (100% / 10) x 2 = 20%
Let’s assume that property, plant and equipment (PP&E) costs $75,000, will produce for 10 years and have a salvage value of $6,000.
From there, we work to establish the Periodic Depreciation Expense (PDE) = Beginning Book Value x Rate of Depreciation
Using the formula for PDE, we get: $75,000 x 0.20 (20 percent) = $ 15,000 for the first year’s depreciation expense.
Then, the first year’s depreciation expense is subtracted from the item’s beginning book value. Ending Book Value = $75,000 – $15,000 = $60,000
To determine each subsequent year’s ending book value, it begins with last year’s ending book value minus the newly calculated annual depreciation expense.
Year 2 Calculation for Ending Book Value: $60,000 – ($60,000 x 0.20 = $12,000) = $48,000
Considerations
This method expenses a greater proportion in the earlier years compared to the later years. This is attributable to assets that produce more for a business in their earlier years compared to later years. This method can help businesses depreciate items that lose value quickly, such as electronics, and similar items that become obsolete due to improving technology. It’s not necessarily double or 200 percent of the straight-line rate. It could be more or less than double of the straight-line rate. However, the double depreciation rate does remain constant over the depreciation process.
3. Units of Production Depreciation Method
This takes either the amount of discrete time utilized for production or the tally of items to be manufactured with the production equipment subject to depreciation. It’s calculated as follows:
Depreciation Expense = ((Cost – Salvage value) / (Life in Number of Units)) x Number of Units Produced During Accounting Time Frame.
Let’s assume a piece of equipment costs $100,000, has a projected lifetime production ability of 150 million widgets and will salvage for $10,000. It’s projected to create an output of 25 million widgets within the accounting year.
Depreciation Expense = (($100,000 – $10,000) / (150 million)) x 25 million
= (($90,000) / (150 million)) x 25 million
= 0.0006 (unit) x 25 million
= $15,000
Considerations
This method can help businesses such as manufacturers that produce discrete items that can be counted and expensed per piece. Depreciation starts when the manufacturer begins to make items and stops when the unit has produced all of its life’s items within a pre-defined time frame.
4. Sum-of-the-Years Digits Depreciation Method
It’s calculated as follows:
Remaining Life (RL) of an asset is divided by the sum of the years digits (SYD) x Depreciation Base. The Depreciation Base = (Cost – Salvage Value)
Assuming there are equipment costs of $50,000, with a useful life of 12 years and a salvage value of $3,500. Depreciation Base = $50,000 – $3,500 = $46,500
RL = the remaining life of the asset. When the item starts running, it will have 12 years of a remaining life. One year later, or 12 months after usage began, the asset will have 11 years remaining, and so on. For an item with 12 years of useful life, it will be “the sum of the years” or 1+2+3+4+5+6+7+8+9+10+11+12.
The first year of use or the item’s Remaining Life will be 12 / 78 = 0.1538. Then 0.1538 x $46,500 = $7,153.85.
Year 2 would be calculated as 11 / 78 = 0.1410. Then 0.1410 X $46,500 = $6,557.69.
Considerations
This method is another way to speed up the percentage of depreciation sooner, instead of toward the end of the asset’s useful life. The longer the asset is used, the less the asset provides utility to the business. Therefore, it helps businesses take advantage of depreciation sooner. It’s a trade-off for items that require more maintenance as time goes on, as the item’s value drops inversely.
Conclusion
Depending on the type of business and what it produces or provides as a service, understanding how depreciation works can give an accurate picture of the company’s finances and help navigate tax laws efficiently.
Disclaimer
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact a professional regarding the topics in these articles. The images linked to these articles are protected by copyright and should not be copied for any reason.
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Even though summer is still somewhat in full swing, school will be starting soon. Yes, you heard that right. This means that you probably need to get prepared for the inevitable cash outlay ahead. But it doesn’t have to cost an arm and a leg. Here are some ways to navigate the upcoming expenditures and save a penny or two.
Despite borrowing massive amounts of money, the government still needs to find ways to raise revenue to pay for new programs and spending. The current democratically controlled Congress is looking to potentially implement new social programs and a climate bill. As a way of funding these initiatives, they are considering an expansion of the Net Investment Income Tax (NIIT).
Depreciation is the accounting concept that evaluates an asset’s useful life. As the Internal Revenue Service explains, depreciable property – which could include equipment, structures, means of transportation, fixtures, etc. – is examined to see how many years the purchase price can be averaged and “deducted from taxable income.” This is in contrast to “full expensing,” which allows companies to write off investments straight away. For dual use property (personal and commercial), only the proportion of property that’s used for business may be depreciated. Property eligible for depreciation must be owned by the business, be used for business purposes/income-producing activity, and have a determinable useful life.