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Frequently Asked Questions for Small Business

Partner Guarantee Payments

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The IRS says that guaranteed payments are made to partners and are "determined without regard to the partner's income." What this means is that the partner is paid for services to the partnership, or they may receive guaranteed payments for use of capital (interest payments).

We help many clients with entity formation. In many cases, the entity of choice is a limited liability company in part because of the great flexibility a limited liability company offers. You then need to consider as an owner how you will be compensated for performing services to the company. A guaranteed payment is a specific term in the Internal Revenue Code, which is defined as payments to a partner (in a partnership) or a member (in a limited liability company) in his or her partner or member capacity for services rendered to the partnership or limited liability without regard to the income of the entity.


Guaranteed payments are payments that an entity makes to an owner for managing the day-to-day operations of the entity and are made regardless of whether the entity makes a profit. In the case of guaranteed payments, in situations where the entity does not make any distributions from profits to the other owners, the owner who is managing the day-to-day operations still receives a guaranteed payment and is compensated for the work he is she is performing on a daily basis for the entity. In this way, the guaranteed payment for a partnership or an LLC is the functional equivalent of a salary to a shareholder-employee in an S or a C corporation.


Like a salary expense, the guaranteed payment is treated as an expense to the entity and may pass-through as a deduction to the entity’s owners. Owners who receive guaranteed payments are subject to self-employment tax and estimated income taxes. The payments are ordinary income and aren’t subject to income tax and FICA tax withholding as a salary would be. The entity will not withhold taxes on guaranteed payments, and the owner who receives a guaranteed payment will need to file an income tax return to report the guaranteed payments.

What is a business deduction?

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Contact us to if you have any questions regarding qualifying business expenses or taxable income. You take the amount of the expense and subtract that from your taxable income. Essentially, tax write-offs allow you to pay a smaller tax bill. But the expense has to fit the IRS criteria of a tax deduction.

Below you’ll find a list of write-offs commonly available to sole proprietors, and businesses that are organized as partnerships or limited liability companies (LLCs). Some of these are directly related to running a business, and some are more personal deductions that a small business owner should be aware of.

Contact us to if you have any questions regarding qualifying business expenses

New Mileage Rates

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IRS issues standard mileage rates for 2020

WASHINGTON — The Internal Revenue Service today issued the 2020 optional  standard mileage rates used to calculate the deductible costs of  operating an automobile for business, charitable, medical or moving  purposes.

Beginning on Jan. 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
  • 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
  • 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased one half of a cent for business  travel driven and three cents for medical and certain moving expense  from the rates for 2019. The charitable rate is set by statute and  remains unchanged.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers  cannot claim a miscellaneous itemized deduction for un-reimbursed  employee travel expenses. Taxpayers also cannot claim a deduction for  moving expenses, except members of the Armed Forces  on active duty moving under orders to a permanent change of station.

The standard mileage rate for business use is based on an annual study  of the fixed and variable costs of operating an automobile. 

Taxpayers always have the option of calculating the actual costs of  using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle  after using any depreciation method under the Modified Accelerated Cost  Recovery System (MACRS) or after claiming a Section 179 deduction for  that vehicle. In addition, the business standard  mileage rate cannot be used for more than five vehicles used  simultaneously. 

What are the parameters of vehicle use for business?

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 If you use your vehicle solely for business purposes, then you can deduct the entire cost of operating the vehicle. If you use it for both business and personal trips, you can only deduct the costs associated with business-related usage.  Be careful, if you aren’t a sole proprietor there are some different rules if the company doesn’t own the vehicle.  

  • How do I figure my business mileage deduction? 

There are two methods for deducting vehicle expenses, and you can choose whichever one gives you a greater tax benefit.

  • Standard mileage rate. Multiply the miles driven for business during the year by a standard mileage rate.
  • Actual expense method. Track all of the costs of operating the vehicle for the year, including gas, oil, repairs, tires, insurance, registration fees, and lease payments. Multiply those expenses by the percentage of miles driven for business.

We have found the standard mileage rate to be a lot less cumbersome on the taxpayer and a lot less paper to keep up with.

What is depreciation?

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 In accounting terms, depreciation is defined as the reduction of the cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc..

What about depreciation of vehicles?

The depreciation of vehicles, can be limited. The IRS has announced the inflation-adjusted “luxury automobile” limits on certain deductions that may be taken by taxpayers using passenger automobiles (including vans or trucks) in a trade or business.  

 

What is Section 179 depreciation?

Section 179 of the United States Internal Revenue Code, allows a taxpayer to elect to deduct the cost of certain types of property on their income taxes as a 100% expense, rather than requiring the cost of the property to be capitalized and depreciated.  

There are limits to this expense and it can’t be more than your net income before the expense, so let us help you navigate the details.