Using a car in your business means tax deductible expenses. But what are the rules? How much can you deduct? What records should you keep?
Here are some answers to those questions. As usual, it’s a bit more complex than the amount of information that fits into this space. See more details and information links at the IRS website www.irs.gov/taxtopics/tc510.html.
The Rules – The entire cost of operating a car or other vehicle used only for business purposes can be deductible, subject to some limits. However, if the car is used for both business and personal purposes, only the portion of the cost used for business can be deducted. More about figuring that out under “Recordkeeping.”
How Much – Two methods can be used: the Standard Mileage Rate Method or the Actual Expense Method. Calculate the deduction both ways and choose the method that gives you a larger deduction. You can switch between methods if the car is owned. If it’s leased, the method must be selected in the first year and used for the rest of the lease period.
- The Standard Mileage Rate can be taken for owned or leased cars not part of a vehicle fleet operation (e.g., five or more vehicles). The Standard Rate is determined annually by the IRS, based on average operating costs including depreciation. The Standard Rate is $.53 per mile for business use in 2017.
- Actual Expenses can be deducted by tracking what it actually costs to operate the car, multiplied by the percentage of the business use of the car. Operating expenses include gas, maintenance, repairs, insurance, registration fees, licenses, lease payments, and depreciation.
Expenses for parking fees and tolls attributable to business use are deducted separately, whether you use the Standard Mileage Rate Method or Actual Expense Method.
Recordkeeping – All business expenses must be substantiated by adequate records or evidence. Payment for many car expenses is evidenced by a receipt or invoice, just like any other expense item. However, there’s only one way to substantiate the business and personal use of the car – tracking the mileage. No matter which method you use, track those miles using an app or a log book.
Sure, deducting the business use of a car on your taxes takes some effort and planning. But once you see how those deductions can add up – at $.53 a mile – you’ll see that time pay off in tax savings.
Did you know that about 5% of all revenue earned by organizations in the United States is lost to fraud? That’s 5% of everyone’s hard work being siphoned off every year! The statistics are even worse for small businesses and nonprofits because they usually have fewer people and resources.
So exactly what is fraud? How can it happen, and how can it be prevented?
Fraud is an illicit act of deceit or mistrust to obtain money, or derive business or personal advantage. Fraud is perpetrated with intent to inflict suffering on another to achieve financial or other gain.
Frauds fall into three categories:
- Asset misappropriation represents the highest volume of fraud instances, but the lowest dollar amount. Examples include taking home office supplies and using a company vehicle for personal transportation.
- Financial statement manipulation represents the lowest volume and the highest dollar amount. This is due to the position and motives of the organization’s senior management. They have access to alter reported revenue and expense information.
- Corruption includes submitting fraudulent invoices from fictitious vendors and paying bribes. These frauds may also involve regulatory breaches, such as under the Foreign Corrupt Practices Act (FCPA).
Organizations that take these three actions reduce their chances of falling victim to fraud.
- Zero Tolerance – Communicate and train everyone in your organization that fraud and related activities will not be tolerated. Address the ramifications of engaging in fraud, such as termination and prosecution. Be prepared to take those actions, if necessary.
- Segregate Tasks – Assign transaction tasks in a way that makes it difficult for funds to be diverted from your bottom line. Examples include separating payment request and preparation from spending approvals and signing checks.
- Reconciliations/Independent Review – Someone who has no responsibility for initiating, preparing, or approving transactions must reconcile the books. Periodic reviews should be performed by someone who is independent of the transaction process, but familiar enough with the organization to identify inappropriate activity.
Avoid losing 5% in revenue to fraud by taking these three actions, and reduce the chance that your organization will fall victim to fraud. Your bottom line will thank you.
Nonprofit Boards have a big job. One of the biggest parts of that job is fiduciary responsibility — making sure that the organization is funded, and that funds go to supporting the mission. Reviewing organization’s financial condition is one way that Boards fulfill their fiduciary responsibility.
How do Boards review the organization’s financial condition? It all starts with receiving and reviewing periodic financial statements, and analyzing financial performance in relation to the budget and financial ratios.
Nonprofit Boards should monitor financial performance and take action in four areas:
- Budget vs. Actual Performance
The year-to-date budget should be compared to actual performance. Analyze variances between budget and actual performance, especially for key income and program or administrative expense categories. Identify why variance from plan are occurring for significant differences and line items.
Periodically assess four financial ratios to identify trends and their impact on fundraising and other plans:
- Days Cash on Hand – days of operation with no funds received and no investments liquidated
- Days Cash and Investments on Hand – days of operation after liquidating investments and before borrowing funds
- Current Ratio – divide current assets by current liabilities to assess overall financial health
- Debt Ratio – divide total liabilities by total unrestricted net assets to assess the need to reduce leverage
- Fund Raising
Assess the potential for overreliance on one individual funding source, indicating the need to diversify. Benchmark fundraising expenses in relation to funds raised against Charity Navigator or another metric to determine the return-on-investment of individual fund raising events and activities.
- Program Expenses
Measuring the relationship of each program’s expenses to overall expenses helps the Board to prioritize their attention on programs where more organizational resources are invested.
Nonprofit Boards fulfill fiduciary responsibility by monitoring the organization’s financial condition and making prudent decisions to maintain financial stewardship. By focusing on the four financial areas above, Boards can assess and act appropriately on financial performance.
Pricing is one of the biggest questions for businesses that are new or launching new service or product line. How do you strike the right price? It’s not as simple as covering your costs and checking out competitor’s prices.
Your price should reflect your value. Just covering costs and having a little profit to show for your hard work isn’t enough. That approach doesn’t recognize the value that distinguishes you from your competitors.
Pricing boils down to three elements: Cost, Competition, and Value
Start by figuring out all the costs you need to cover, both direct and indirect. Direct costs are usually the most obvious, like materials and labor. Indirect costs, like rent and marketing, also need to be recognized in the total cost per service or product. Consider recovering the cost to replace equipment that will wear out within three to ten years.
Once you know your costs, check out the competition to get some perspective. Take care not to use competitor prices as your only guide. You don’t know enough about how the situation or profitability. Does your market have unmet demand? Competitive pricing and great customer service create market presence and capture market share.
Should your price reflect your superior quality, experience, credentials, or team? Absolutely! Don’t hesitate to charge more than the competition as long as you can distinguish your service or product from the others. Identify the qualities that create more value to your customers and reflect them in your price structure.
Pricing your service or product should consider Cost, Competition, and Value. Identify your value proposition and make sure that Your Price Reflects Your Value. Deliver more value to your customers and earn that higher price!
Frequent readers know my opinion that workshops are a great way to get a lot of information in one place. Last week’s Fierce about Your Finances Expo, conducted by Financially Fierce, LLC, proved me right again. The Expo provided lots of financial information to plan for achieving your goals.
A Goal without a Plan is just a Dream.
Planning to achieve personal and business financial goals was the overall theme of the Expo. Participants were there to obtain useful information to start or augment her or his plans. Exhibitors (including me) shared her or his knowledge to help those plans along.
Topics at the Expo ranged from taxes (me again), to retirement, mortgages, and debt recovery. For all the topics, the Expo delivered three common messages about planning to achieve financial goals:
- Establish Clear Goals
Determining what you want to accomplish, at what level, how, and by what date are essential to establish clear goals. Answering all those questions about what, how, and when also helps you track your progress and know when you’ve achieved your goals.
- Do Your Research
Harness the information available at Expos, professional organizations, and networking groups. Seek out successful people and ask for guidance. Read books and publications. Attend conferences and events that offer the information necessary for your plan.
- Adapt to Updates
New information and changing conditions make your plans change. Plans must be adapted based on new inputs and the learning that happens while you’re doing. Recognize the difference between adapting your plan and losing focus on your goals.
Adopting these three messages helps people and businesses to Plan for achieving their Goals, to keep those Goals from being just a Dream that never comes true.