Taxation of Business and Personal Use Assets

Taxation of Business and Personal Use Assets
Share on facebook
Facebook
Share on google
Google+
Share on twitter
Twitter
Share on linkedin
LinkedIn
Reading Time: 4 minutes

As accounting and tax experts, we encounter many situations where small businesses are confronted with complex Federal Income Tax issues in regards to both business and personal use assets. (These are known as dual-use assets).

First of all, what exactly are dual-use assets? Simply put, they are any property that is used at least part of the time in your small business and part of the time for personal use or enjoyment. By “property” we mean any of a variety of items used in your small. These can include computers and all manner of electronic devices and motor vehicles. They can even a portion of your own home. When we talk about computers we include consider software.

Learn more about 4 trends that will dominate in 2020 for small business

We will discuss the tax treatment of dual-use computers and software first because they create additional complications. Then we will talk about the tax treatment of vehicles and homes. These can also can be quite complicated.

Taxation of Dual-Use Computers and Software

The taxation of dual-use computers and software for small businesses presents additional complications. Fortunately, as tax and accounting experts, we can help you navigate this complex area.

The main complication is the question of whether the costs of the computer or other electronic equipment can be deducted from your small business income fully in the year in which it was purchased. Alternatively, it may have to be amortized over a period of several years.

Next, you must determine the percentage of time the item is used for business use and personal use. Your small business needs to keep an accurate record of the use of the property. This record must stand up to IRS scrutiny if your small business is audited. One simple method is to create two screen names: one for business and one for personal use.

Find out how you can write-off previously bought equipment as a business expense?

Example

The Internal Revenue Code was changed fairly recently. Now the IRS will probably allow you to deduct the full cost in the first year rather than amortizing it. We say “probably” because there are limits. You generally cannot deduct more than $1 million per year. Your small business must have made sufficient income to offset the deduction. Finally, the property must be used more than half the time for business purposes.

Here’s a simple example. Your small business buys a computer for $1,000 in 2020. You use it 70% of the time for business. You also have a personal email and Facebook accounts that you use during the other 30% of your computer’s use. Assuming all the conditions we described above are met, you can deduct $700 from your small business income for Federal Income Taxes for the 2020 tax year.

Learn 3 great tax breaks that can effect your business in 2020

Dual-Use Motor Vehicles

Motor vehicles can present a variety of issues for small businesses. A pickup truck or panel wagon that is used exclusively for business is a simple case. But there are many other complicated situations.

One example is a car that is used to drive from work to your client but is also used as the business owner’s personal vehicle. Another is a car that is partially used for work and its mileage is billed to clients. You can imagine many other combinations.

Selling your business vehicle? Learn how to reduce tax 

As accounting and tax experts we can walk you through them. Fortunately, there are a number of software programs that allow you and your employees to record all varieties of automobile use. These programs are in a format that we can easily use to determine what portion of your car’s mileage is deductible against your small business income. By the way, for 2019 the deduction is 58 cents a mile, whether the vehicle is a car, van, pickup, or panel truck.

Dual-Use of the Family Home

It is very common for small businesses to operate all or partially out of a family home. However, deducting a portion of a home as a business expense can raise a red flag with the IRS. Thus, it is very important to keep very careful records.

Let’s use a fairly simple example. You run your family business out of your home. Your home has 2,000 square feet of living space and your home office is 200 square feet. So you can calculate that you are using 10% of your home for business. That means that 10% of virtually all home expenses are deductible. This requires careful record keeping on your part.

How to qualify for itemized deduction in 2020?; Use Bunching 

As you can see, when your small business has a property that is used for both business and personal use there are a number of tax and accounting issues that need to be addressed carefully. As accounting and tax experts we can help you with these issues.

If you’d like to learn more about tax laws and your business, we at Akif CPA are here to help. Learn about our services here.

Do you have unique issues or concerns not discussed in this blog then please contact us by email or phone. We are here to help.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Akif CPA will not be held liable for any problems that arise from the usage of the information provided on this page.

Leave a Reply

Your email address will not be published. Required fields are marked *

Client Reviews
AKIF CPA
5.0
Based on 107 reviews
powered by Google
Annie Phillips
Annie Phillips
12:35 10 Oct 21
Turn around time was amazing on the project I needed done. When you don’t understand all the different forms... communication is key and you will get that here. They are there to explain what and why you need it.read more
Meru Kapadia
Meru Kapadia
23:33 01 Oct 21
I usually don't write reviews much as everyone has different experiences, but definitely wanted to share the positive... experience I have had here and why I would recommend them to all my family, friends and co-workers.I got a referral for here from a friend, so thought of giving them a try over my old CPA firm. I have been going here for a couple years now and have to say they are top notch. They are always responsive and willing to work with me even when I am delayed. I generally like to ask a lot of questions and not once did I feel like they were annoyed by it and would very thoroughly and positively answer all my concerns with detail explanations. Even during the pandemic, they worked with me 100% virtual and it was seamless. Overall, I am very happy with this firm and will continue with them for the foreseeable future.read more
Kevan Shah
Kevan Shah
21:45 01 Oct 21
I’ve been going to them for 3 years now for multiple of my businesses. I changed to them after I had problems with my... previous CPA firm and I’m so glad I did! Best decision I ever made for my businesses. They have saved me thousands of dollars over the years as well as deal with my immensely complicated tax filling issues. No matter when I call, they always help answer all my questions (and trust me I have a lot) and put my mind at ease on all my concerns. I feel as if I am family the way they take care of me. The quality of their work has not changed; very consistent and professional. It is an understatement when I say I highly recommend them.read more
Maunil Shah
Maunil Shah
16:19 01 Oct 21
AKIF CPA is the best place for your tax needs! Saim has been easily available for my all my questions and concerns. ... Couldn’t ask for a better firm that provides excellent service and a familiarity with their clients. I always recommend family and friends to AKIF CPA!!read more
Shah Hussain
Shah Hussain
03:58 01 Oct 21
Hello AKIF CPA,I wanted to share my experience with you, your team and whomever may be reading this message. My most... humble thanks to you and your team for a being such great part of my success.You have done a fabulous job for us this year, and since you took over our books (during our most devastating times) you have literally taken weight off of our shoulders.Thanks for bringing everything up to date and also providing us with numbers or as you call it consultations, ahead of time so we could seal the holes.Great work!!!Shah H.read more
Sumit Dalwadi
Sumit Dalwadi
04:57 30 Sep 21
The professionals at Akif have been absolutely amazing! Quick to answer all the questions I had and always available... to offer their guidance.read more
Calvin R
Calvin R
20:21 29 Sep 21
I recommend these guys! I will be going back next year. They made everything simple and we understood what was... happening. There we issues with our taxes due to our previous accountant and these guys fixed everything. They answered our questions and service was always with a smile.read more
Ammoria Daniels
Ammoria Daniels
02:11 16 Sep 21
We contacted Akif with an urgent matter regarding corporate taxes. Akif immediately understood what was needed and... within days had everything ready to sign. The level of service we received was amazing and unmatched. Waqar expertise in trucking industry made our situation seamless. His communication was outstanding; I heard from him daily and could have been completed sooner if I was as fast as he was 😃 Highly recommended!read more
Joe Paneitz
Joe Paneitz
18:30 18 Aug 21
What an absolute pleasure to work with this CPA firm. My business is already seeing such a positive impact and growth.... I cannot believe I didn't connect with them sooner. This firm is helping in so many ways! 5 stars is an understatement! Thank you so much for your help AKIF CPAread more
Helptest ARCpoint Labs
Helptest ARCpoint Labs
15:02 18 Aug 21
The firm is quick, responsive, and has the latest technological software. Thus far, I have been with them for 3+ years... and will continue to work with them even after relocating. They make it easy even when I'm miles away. Would highly recommend them.read more
Luz Tipaz
Luz Tipaz
16:06 13 Jul 21
Saim and his team are the best CPAs in town. I have been their client for years. All started when I needed help with... company structure with multiple companies and then accounting and Taxes. I have been very happy ever since. Thank you AKIF CPA.read more
Maria perez
Maria perez
18:31 08 Jun 21
Me and my husband have been getting all of our personal Taxes, business Taxes, monthly bookkeeping, accounting and... payroll done with AKIF CPA. Recently, we had more stuff come up and had detailed analysis done on capital gains, single family rentals (SFR) and business disposition. You will only know how great this CPA company is until you have worked with them and given them a chance. Words can’t describe our experience. AKIF CPA gets the job done every time - very reliable, professional and affordable.read more
Afnaan Amin
Afnaan Amin
22:14 02 Jun 21
Very good experience, we had unique situation in regards to cross border income as Canadians currently residing in the... US. Income on both sides of the border through completely different channels. Everything was very easy and completed timely, I also had lots of random questions and Mohammad provided top notch service along the way and even after we finished our taxes!! Highly recommended.read more
Ryan Paton
Ryan Paton
10:56 08 May 21
I moved to the USA from Canada late 2018 as part of a promotion/relocation for work. For my 2019 returns, I used an... accounting firm recommended by the local Canadian social club in my city, which was a terrible experience. They were slow to respond to inquiries and would follow up in piecemeal requests which dragged out my return process over several months, often asking for information I had already provided.For the price I paid, I vowed to find better service. I found Mohammad online and decided to reach out. Mohammad was extremely responsive, took care of my US and Canadian returns as well as my wife's business returns in a timely manner. Overall, it was a very positive experience and I would recommend him to another in my situation.read more
Tuan Vo
Tuan Vo
01:59 20 Apr 21
I relocated to Texas from Alberta, Canada and needed a CPA to help me with my cross-border taxes as I was not happy... with the CPA that I used previously. During my interviewing process to find another CPA, I had good feedback from Mohammad as he was able to answer my questions regarding my unique tax situation with expertise, and importantly to me, in a timely manner. I decided to use his services for the current tax year and I have nothing but compliments for the work Mohammad provided. If you are in need of a professional cross-border CPA, I highly recommend reaching out to Mohammad Akif.read more
See All Reviews