Does your business hold intangible assets? Intangibles are nonphysical, long-term resources that can add significant value to a business. Examples include copyrights, licenses and customer lists. The tax implications can be complex.
IRS regulations require the capitalization of costs to 1) acquire or create intangibles; 2) create or enhance a separate, distinct intangible; 3) create or enhance a future benefit identified in IRS guidance as capitalizable; or 4) facilitate the acquisition or creation of intangibles. Capitalized costs can't be fully deducted in the year paid or incurred. They generally must be ratably deducted over the asset's life. Questions? Your tax advisor can help.
Limited partner status in a business generally offers valuable benefits, including liability protection and self-employment tax advantages. But it may also limit your ability to deduct partnership losses under the passive activity loss rules. Passive losses are usually deductible only against passive income unless you materially participate in the business.
Limited partners face a tougher standard than general partners. Certain work, such as investor activities or tasks not customarily performed by owners, may not count toward material participation. Other limitations may also apply. Before investing in a limited partnership or claiming losses, contact your tax advisor to discuss the tax implications.
For many business owners, the terms "repairs" and "improvements" are interchangeable. But the tax implications differ. If your business completes repairs, you can deduct the costs the year they're made. Improvements are capital expenditures that generally must be written off over time.
Determining whether work constitutes a repair or an improvement can be tricky. The IRS's tangible property regulations offer some clarity. For example, they provide a safe-harbor rule under which you can currently deduct amounts paid for tangible property if you deduct those amounts for financial accounting purposes or in keeping your books and records, subject to certain dollar limits. Contact your tax advisor for details.
Pets can provide business tax advantages. It's true! Your business may be able to deduct the cost of "employing" cats and dogs, so long as the animals serve a bona fide business purpose. Working animals that generally qualify include guard dogs and cats that protect facilities from rodents.
If these workers are also part-time pets, you can deduct only the percentage of expenses associated with the animals' working schedules. Expenses for food, veterinary care, training, and supplies such as leashes and beds are usually deductible. But the costs must be "reasonable," and it's critical to keep good records. Different tax rules apply to farmers, ranchers and professional breeders.
If you and your spouse operate a profitable, unincorporated small business, you face some unique tax issues. The IRS will generally classify your business as a partnership for federal tax purposes.
You'll have to file an annual partnership return and both you and your spouse must receive Schedules K-1, which allocate taxable income, deductions and credits between the two of you. You must also pay self-employment (SE) tax on your share of the net SE income passed through to you by the spousal partnership. Your spouse must do the same.
The Bottom Line: Turn to your tax advisor to keep your business in compliance with the IRS while you and your spouse keep the business running smoothly.
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