Advertising Expenses – On The Tax Reform Radar

Comprehensive tax reform is guided by a simple formula that masks a complex process that produces winners and losers. The formula is broaden the base, lower the rates. This means increasing what most taxpayers report as taxable income, but taxing that larger number at a lower marginal tax rate.

To broaden the base, tax policymakers must curtail or eliminate many deductions, credits, and other tax rules. The most common set examined are the annually reported set of tax expenditures, which include broadly claimed and popular deductions like the mortgage interest deduction.

However, as part of business tax reform, other rules not necessarily considered tax expenditures could also be weakened in order to broaden the tax base. One such item included in a recent legislative draft from the Chairman of the Senate Finance Committee is the deduction for advertising expenses.

Under present law, advertising expenses are deductible as ordinary and necessary business expenses. However, under the legislative draft a business would be required to capitalize and amortize 50 percent of advertising expenses over a five-year period. The remaining 50% could be deducted in the year of the expense. The net effect of this proposal would be to increase the after-tax cost of advertising compared to other business expenses.

To examine the industry impact of this proposal, we thought it would be interesting to use recent IRS data to examine how important advertising is for various sectors. The following graphs use 2010 (the most recent available) IRS Statistics of Income data for businesses who file Form 1120, which includes C Corporations and some S Corporations. The data exclude a number of kinds of firms, including sole proprietorships and partnerships, so the information is not a complete accounting of business activity, but rather a useful sampling to examine sector differences.

It is immediately clear that construction ranks fairly low in terms of advertising use, at least as measured in terms of total advertising dollars as a percent of annual business receipts. As a sector, the construction industry spent 0.34 percent of total 2010 receipts on advertising. This compares to 0.98 percent for all industries. The highest shares tend to be in industries like entertainment and information services where economies of scale produce more intense national completion. Taxable educational business had the highest overall advertising spending in 2010 at 5.78 percent of receipts.

These data indicate that while changes to the tax treatment of advertising would be an issue worth exploring in tax reform, the construction and real estate sector would be relatively less affected than other areas of the economy.

A more detailed look at construction and real estate firms is presented above. Advertising in 2010 was least used by civil construction and land development at 0.17 percent of total receipts. Following next are businesses who construct residential and nonresidential buildings with 0.26 percent of total receipts in advertising expenses and specialty construction trade contractors at 0.49 percent of receipts.

The only category within the real estate industry that exceeded the national average was the “real estate” category, coming in at 1.16 percent of total receipts. The industrial code reflects lessors of rental real estate, property managers, and those engaged in selling, buying, or appraising real estate.

View this original post on the NAHB Eye on Housing blog.

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Reprinted with permission from RISMedia. ©2014. All rights reserved.

Reducing E&O Exposure with an eSignature

Ask the Expert: Reducing E&O Exposure with an eSignature

Today’s ‘Ask the Expert’ column features Glenn Shimkus, vice president of Real Estate Solutions for DocuSign.

Q: How can eSignature help when it comes to reducing E&O exposure?

A: Among service industry professionals, there is a saying: “It is not if you get an errors and omissions claim, it’s when.” Real estate transactions are becoming ever more complex and the threat of litigation is an even more present reality. To help protect against legal exposure, real estate agents and brokers purchase professional liability insurance (PLI), also commonly called errors and omissions (E&O) insurance. PLI insurance helps protect professional advice and service, preventing individuals and companies from bearing the full cost of defending against a negligence claim made by a client.

We recently came across a great example of where electronic signature solves a compliance problem and reduces E&O risk. On California Association of REALTORS® forms, REALTORS® are legally required to make the arbitration and liquidated damages clauses optional. With electronic signature, however, this field can be made “required” and the signer can “opt out” of the section by declining to sign. This ensures that the signer acknowledges the section and chooses to accept or reject it. It also means the envelope sender has a record of whether the signer chose to accept or reject the section. This reduces E&O risk and also reduces the chance of misunderstanding between agents and buyers. Because there is no missing information that could be overlooked or missed in a manual signing process, there is a reduced risk of E&O exposure.

Electronic signature solutions also save time that would have been spent reviewing contracts to make sure all the required information and signatures have been provided. With required fields, there is no need to double-check contracts to make sure all the fields are completed. If the envelope is complete, then all the information is there.

By using a trusted eSignature solution, you can sleep soundly at night knowing that all your contracts are secure and complete, and that you have taken a big step toward reducing your E&O exposure.

This post has been authored by Eric Slifkin, REALTOR® serving South Florida’s Treasure Coast. You can reach me at 888-288-1765, or visit my Web site. As your resource for information on new or resale homes throughout the Treasure Coast, please be sure to contact me about any home you may find on the Web, yard sign or ad and I will research the property, arrange showings and handle all the details.

Reprinted with permission from RISMedia. ©2014. All rights reserved.

Handy Tax Deduction App: Milebug

Handy Tax Deduction App: Milebug

Spend much time in your car for business? That’s a rhetorical question for most real estate agents I know. Realtors are some of the most mobile people I know. The miles can really add up, and when it comes tax time it’s important to get that accurate deduction! If you’ve recently completed your own taxes and have vowed not to let mileage slip away next year, read on!

If you’re still tracking your data in a little spiral notebook, this year might be the right time to upgrade to a more mobile solution: Milebug.

Milebug lets you easily log mileage for tax purposes. Check out some of the features:

-Use the Mileage Tracker for multiple businesses and multiple vehicles with a simple choice
-Setup frequent destinations and purposes for easy use later
-Choose either kilometers or miles
-Define custom rates for business, charity, medical and other
-Watch your deductions add up with each addition to your tip log
-Email HTML and Excel-friendly reports to your home computer

MileBug mileage tracker for iPhone or Android OS makes it easy to keep records for those who are always on the go, or who just want a central, simple place to keep track of their expenses and mileage.

Learn more about Milebug and download the app.:

I hope you find this helpful! I’d love to log a few miles right now showing you some of my newest listings. Why not drop me a line?