Fortunately, the bulk of our tax rules remain untouched by last year's last-minute tax changes. Unfortunately, there are those surveyors who will overlook, ignore or incorrectly utilize perfectly legitimate tax deductions.
Reducing Taxable Income With Legitimate DeductionsThe average surveyor-or his or her firm-has a vast array of legitimate, readily acceptable, tax deductions available. Consider these often misunderstood, overlooked or neglected areas of possible tax deductions:
Capital Expenses. Any expense that adds to the value or useful life of property is considered a capital expense. Generally, capital expenses must be deducted by means of depreciation or amortization-not immediate write-offs or deductions. Of course, those expenses that keep property in an ordinarily efficient operating condition and do not add to its value or appreciably prolong its useful life are generally deductible as repairs.
Section 179 of our tax law allows every surveying business to treat up to $19,000 ($20,000 in 2000) in equipment costs as an expense rather than requiring capitalization. Naturally, the total cost of property that may be expensed each year cannot exceed the total amount of the firm's taxable income for that year. Plus, for every dollar that the cost of newly acquired equipment exceeds $200,000, the Section 179 expensing allowance must also be reduced by $1.
And, don't forget to claim a tax deduction for property that is no longer used in the surveying operation. An abandonment loss, in an amount equal to the amount that that equipment or property was carried at on the operation's books is often overlooked. Of course, abandoned property can't be simply stored away for future use; it must be clearly abandoned with no strings.
Advertising (Marketing) Expenses. Advertising expenses are deductible if they are reasonable in amount and bear a reasonable relation to the surveying business. The intent may be to develop goodwill rather than to obtain immediate sales.
In a related area, deductions for business gifts, whether made directly or indirectly, are limited to $25 per recipient per year. In other words, a firm can spend whatever amount it deems appropriate on gifts for its customers, but a tax deduction is permitted only for gifts that do not exceed $25 per recipient per year. Items clearly of an advertising nature that cost $4 or less, as well as signs, display racks or other promotional materials given for use on business premises are not gifts under tax rules.
Legal Expenses. The sole proprietor of a surveying business may deduct, as a business expense, that part of the cost of tax return preparation as is properly allocable to the business, as well as expenses incurred in resolving asserted tax deficiencies relating to the business.
Entertaining. Our tax rules impose special limits on the deduction of business-related entertainment and meal expenses. The biggest restriction, of course, is that in order to be tax deductible, the cost of the entertainment, amusement or recreation must be directly related to the active conduct of the surveying business. Generally, the amount allowable as a deduction for meal and entertainment expenses is limited to 50 percent of such expenses. The 50 percent rule is applied only after determining the amount of the otherwise allowable deduction.
Transportation Costs. There is a notable exception to the general rule that commuting expenses are not tax deductible. If a surveyor has at least one regular place of business away from home, then daily transportation expenses for commuting between the taxpayer's residence and a temporary work location in the same trade or business can be deducted.
Note: Those surveyors who use their homes as their principal place of business are permitted to deduct transportation expenses between their homes and another work location in the same trade or business. This rule applies regardless of whether the work location is temporary or regular and regardless of the distance.
Car Expenses. Expenses for gasoline, oil, tires, repairs, insurance, depreciation, parking fees and tolls, licenses and garage rent incurred for cars used in a trade or business are tax deductible. Naturally, the deduction is allowed only for that part of the expense that is attributable to business.
Although a surveyor can substantiate car expenses by keeping an exact record of the amount paid for gasoline, insurance and other costs, Congress has established a simplified method that is available to both employees and self-employed surveyors. Under the standard mileage method, in lieu of calculating the operating and fixed costs allocable to business purposes, the surveyor determines the amount of the allowable deduction by multiplying all of the business miles driven during the year by the standard mileage rate. That standard mileage rate is 32.5 cents a mile for all miles driven in 1998 as well as for all miles driven between Jan. 1, 1999, and March 31, 1999. For business transportation expenses paid or incurred on or after April 1, 1999, the business standard mileage rate drops to 31 cents per mile. For 2000, the rate returns to 32.5 cents per mile. Naturally, the business portion of parking fees and tolls may be deducted in addition to this standard mileage rate.
Paying Your Dues. Society dues, initiation fees and out-of-work benefit assessments are tax deductible by every individual, usually as an itemized deduction subject to the 2 percent floor imposed on personal deductions. Self-employed surveyors may also deduct society dues, usually as a business expense. As a general rule, no business deduction is permitted for club dues. This denial extends to business, social, athletic, luncheon, sporting, airline and hotel clubs. However, dues paid to professional or public service organizations (e.g., accounting associations or Kiwanis and Rotary clubs) are deductible if paid for business reasons, and the organization's primary purpose is not to conduct entertainment activities for members or their guests or to provide such parties with access to entertainment facilities.