CFO Spotlight: An Essay on Incremental Borrowing Rate as a Lessee

During my practice as a CPA I noticed that business owners arrive at my door step requesting tax return preparation with limited or any financial statements.  The majority of the time, business owners have their bank accounts and/or a shoe box full of receipts.  While this may be simplest way to conduct business in your business name, their is limited ability to measure the performance of your business during the year and file an accurate tax return when due.  Items such as contributions personally made, business assets, and how much it took to obtain your desired results are dilemmas business owners face. This blog is indented to address these concerns and the best ways to mitigate this risk.

• Personal contributions are a vital part of a small business.  These contributions come in many forms.  They can be in the form of direct contributions to the entity by making a deposit of funds earned from a job or they can be in the form of the use of a personal credit card to carry on the operations of the business.  Either way the federal governments allows you a way to establish a basis in your business that can be deducted on you tax return so long as you can track these expenses through a financial statement.
• Business assets are the property that are used to create income for the business either directly or indirectly.  For example, a business assets for a Uber driver is the car used to pick up and drop off passengers.  The federal government allows for a systematic deduction of expense for using this assets to conduct the business of the entity. Why not take it?  
• Business expenses are the expenses incurred to create the income for the business.  Expenses such as your salary or flyers to advertise your business expenses used for web hosting of your domain name are all expenses that can be utilized to offset revenues. Small businesses are notorious for not taking the allowable expenses the federal government allows for various deductions just because they did not track their LLC's expenses.  These deduction can used to lower your taxable income for the year.   

The aforementioned items such as these are pulled together on a periodic basis either monthly, quarterly, or annually and will inform you the owner the assets you own, the obligations you have to pay, how much is your business worth, how much revenue you earned, the amount of expenses it took to make that revenue and ultimately how much income you produced during the period. Information such as this can be invaluable when you want to grow your small business through your Schedule C because now you know where to spend your cash to obtain the desired outcome you want all which paying the lowest tax allowable.