Getting Tax Ready in 2012, Part 3 – Get Deductions! (Home Office)

Thursday, January 26, 2012 Posted in Finance, Tax

This week we are talkin’ taxes!  On Tuesday we got all the insane paperwork together and caught up on our accounting from 2011.  Yesterday, I began the discussion on tax deductions, specifically mileage from driving to your business meetings.  Today, let’s continue talking about deductions your business can take to lessen the amount of taxes that you send to the IRS each year.

These are some of the write-offs that you might be missing out on:

The Home Office

If you rent your home, your tax write-off is a fairly simple calculation.  (The IRS provides a worksheet to do the math.  Likely, your tax accountant will work out the numbers for you.)  Essentially, you will calculate the percentage of your home that is used exclusively for business.  From there you determine how much of your rent you can deduct from your taxes.   For example, let’s say…

Your home office is equivalent to 10% of your home
You pay $2000 rent each month

= $200 rent / month is a business expense  x 12 months = $2400 rent expense as a business expense for 2011

On your tax form, you will enter this amount to lessen your tax base.  You can also deduct a portion of your utilities.  (In this example, you could write off 10% of your utility expenses for the year.)

If you own your home, writing off the percentage on your mortgage is more complicated and you will want to consult your tax accountant.  It involves interest and depreciation and fancy accounting.  Furthermore, if you end up selling your house down the line, there are tax implications to the prior year tax write-offs.  In a nutshell: talk to your tax accountant for the best way to work this.  I know some accountants that do recommend that your business pay your family a rent check each month for the use of the home, but you’ll have to make sure you can do this in your specific situation.

Shady areas:

The IRS doesn’t like to see that you’ve written off a portion of your living room because you work on your laptop from the couch.  They’ll want to make sure that the use of space in your home is completely EXCLUSIVE to the use of business.  They also don’t like to see write-offs for other items that have the personal/business mix.  (For example a phone that is used for personal and business unless you can itemize the calls.)Meals & Entertainment

In your accounting (Quickbooks or Excel) you will list the entire meal or entertainment with a client or colleague as a business expense. However, the IRS only allows you to deduct 50% of meals and entertainment. (Remember what I said yesterday about a write-off not always being a great business move for the sole purpose of writing an expense off.) Therefore, your accountant will make an adjustment on your tax form that ADDS BACK 50% of the amount. Essentially, you are increasing your tax base on meals and expenses. So, just be watchful of this expense type. You can easily get sucked in because of the ‘write-off’ when it’s money you can’t totally deduct from your taxes.

OtherWorking with a tax accountant can be awesome because new change are always being made to the tax code.  They are up on all the latest in the world of IRS and can save you some hard earned money.

Come back next week!  I want to talk about saving for taxes.

 

 

by Michelle Loretta

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Getting Tax-Ready in 2012, Part 2 – Get Deductions! (Track Miles)

Wednesday, January 25, 2012 Posted in Finance, Tax

Yesterday, we tackled the organizational part of getting your taxes ready. Today, I want to share with you my tax-saving tips.  Like I said, I’m not a tax expert.   (You need to hire one of those.)  But, I do know a few things about saving money in the tax department.  These tips are often overlooked and could save you on some of the dollars that you mail Uncle Sam each April.

“Write-offs”

A “write-off” is an expense that you can use as a deduction from the taxes that you pay the US Treasury.  There are two types of write-offs:

  • a business expense that hits your profit & loss statement
  • an adjustment to your tax base (typically done directly on your tax forms)

It’s true that business expenses do lessen the amount of taxes you pay each year.  But, an expense is an expense is an expense.  It’s money out of your pocket.  And, I don’t know about you, I’d rather have money in my pocket.  The money saved on the tax is never enough to equal the expense.  Depending on your tax bracket, a business expense of $100 may mean that you are paying $30 less in taxes.  $100 is better than $30, don’t you think?

Something I often hear new business owners say is:

“Oh – it’s a business expense.  It’s a great write-off.”

This makes me cringe. Don’t spend money just because of the write-off.  The IRS is not sending you a check for this money.  You won’t see it again.  Spend the money because it’s a good move for your business, not because it’s a write-off.

This being said, there are some write-offs that you might be missing out on:

Image: Creative Commons

1 – Car Mileage for Business Purposes

The government will allow you to write off 51c / mile that you travel for business, but you MUST track it.  (Note: this was increased to 55.5c/mile for 2012.)  This is money in your pocket that you may not be capturing.  Assuming you drive 40 miles each week to meet with clients, this is how the numbers shake out:
40 miles/week
x 51c / mile
x 52 weeks/ yr
= $1060

This is an amount that your tax accountant will put as a deduction on your Schedule C (the tax form used for businesses) and is not typically something that you input into your tax accounting (or affects your profit & loss, unless you are reimbursing employees). This amount gets deduced from your business income, lessening your tax base. Depending on your tax bracket, you could be paying ~$300 less in taxes because of this. Cha-ching!

How to track your miles…

Remember, if you are audited, the IRS will want to see an actual log showing the travel you made in the tax year. Here are some easy ways to keep track of your mileage:

  • Keep a mileage log in your car.  A little notebook is just fine!
  • Track the starting point, end point, and how many miles you traveled.
  • Note the order of business and whom you met with.
  • Milebug and Pocket Mileage are 2 iPhone apps that make the tracking easy-peasy.  (These also have reports that you can export to Excel.)

Keep this for your tax accountant so that he or she can adjust your tax report to indicate your mileage.

Shady areas:
You cannot write off your car payments as a business expense, claiming that your car is used for business purposes unless your car is indeed used for 100% business.  The IRS isn’t too easily convinced by this unless they see something on your car that indicates it is a business vehicle.  An example of this is a florist delivery van that has the business name emblazoned on the side.

You cannot write off the actual gas used in your automobile.  For the IRS, it is too difficult to determine whether all of the gas in the tank went exclusively to business meetings.  Also, the mileage rate deduction will get you a better write-off because the rates are set to include wear and tear to your car, not just the gas expended.

Come back tomorrow!  I’ll have some more deduction tips for your 2011.

by Michelle Loretta

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Getting Tax-Ready in 2012, Part 1 – Get Organized!

Tuesday, January 24, 2012 Posted in Business Finance, Tax

April 15th is coming soon!  Are you excited?!  I know you dream of this all year long.  Staying up late at night with your receipts, trying to catch up on your accounting… all so that you can pay Uncle Same a nice fat check.  Am I right?!? ;)

As much as I love the numbers of business and their ability to help me make solid decisions, I detest getting all my accounting ready for taxes.  AND – I hate paying taxes.  But, such is life.  There is nothing more certain than death and taxes.

I’m going to help you get you ‘tax-ready’.  Keep in mind, I am not a tax expert.  (You need to hire one of those.)  But, these tips should give you a good basis for preparation.  Make sure to jump ahead to the section that applies to you…

Image: Creative Commons

1 – Get Organized

 Have you been separating your receipts each month?  Are they organized?  If so, skip to #2.  If you have an ugly box of denial, read here…

As I’ve said before, accounting is 80% organization and 20% perspiration.  If you haven’t been good about being organized, you’ll need to do some catch up.  I have been in the ugly position of having a year’s worth of receipts in a big bin that I had to sort thru for good ol’ Uncle Sam.  UGLY!  (New motherhood took its toll on me in 2007.)

So here’s what you do:

  • Go thru the box o’ denial piece by piece and sort each expense receipt, each client invoice, each bank statement etc.
  • Sort each receipt by month and separate them into 12 files (one file for each month).
  • Make sure you have a bank statement for your business bank account for each month.  If you are missing a few months of statements, download them from your online banking information.   (If you don’t have a separate bank account for your business, go back and read Accounting 101, get a separate bank account NOW, and start highlighting your business expenses from 2011 on your 12 months of personal bank statements.)

If you ended up 2011 with a huge box of denial, you certainly don’t want to be in that position next year.  There’s nothing like the present to get yourself ready for 2012 taxes next year, so go back and read Accounting 101 for total organization and start moving in a positive direction for this year.

2 – Create your accounting records

Have you been updating your accounting records monthly?  If so, skip to #3.  If you have a ton of data entry catch up to do, read here…

If you have not been inputting your accounting records on a monthly basis, you’re going to  have to do all of your inputting now.  This can take a few days depending on the number of transactions. So grab a few bottles of wine and sit back. (But not tooooo many bottles of wine.  We want accuracy here.)

The easiest way to create your accounting and catch up is to go through your 12 months of bank statements, line by line:

  • Use your bank statements (starting in January) and start to identify all of the transactions: cash going in, cash going out.
  • If you use Quickbooks (or other accounting software) start inputting them.  (The Accounting 101 tutorial gives great basics on this.)  If you do not use any accounting software, I don’t know if I’d recommend starting at this juncture.  Because of the learning curve, software is better for when you can move forward – not for when you are playing catch-up.
  • If you don’t use software, start inputting the transactions into an excel spreadsheet:
    • Date
    • Payee
    • Amount
    • Description
    • Category aka Account (what type of transaction was this? marketing expense? phone expense? advertising expense?)
  • You’ll want to make sure to have a separate Excel sheet for each type of transaction. (One for expense receipts – cash going out.  One for client invoices/contracts – cash coming in.)
  • As you go thru each month, look thru your receipt files (that you compiled in section 1).  Check to see that you have a receipt to back up the transaction on the bank statement.  (This is uber-necessary in the chances that you are audited.)  If you do not have a receipt, see if you can go back and get one.  (If it was an online charge, you should be. If it was a retail purchase, you won’t be.)  Just make a note of any receipts you do not have and make a sign of the cross (or sacrifice a chicken – whatever your religion prescribes.)
  • Make sure to do the same for any business credit cards you have.

3 – Create Accounting Reports

This is where having accounting software can save you some minutes in the proverbial nuthouse.  The reason I am obnoxiously adamant that people use accounting software for their businesses is the ability to generate accounting reports.  People spend years in college (I did!) learning how to put these reports together.  But, with Quickbooks you can do it with a touch of button.  Unless you have some accounting in your bones, you will not be able to make these reports.  (I’m sorry.)

These are the reports your accountant may ask you for, depending on the structure of your business (corporation, partnership, LLC, LLP, sole proprietorship):

  • Balance Sheet for 12/31/2011
  • Profit & Loss for 1/1/2011 to 12/31/2011

Nowwwwww… I don’t want to scare you too much.  If you don’t have the Quickbooks, your accountant MAY be able to work around this if you give him or her a listing of all your expenses (cash out) and all of your client invoices (cash in).  Accountants can be cool like that.  But, spare yourselves some misery in 2012 and get yourself some accounting software ASAP.

And… there’s more!

Come back tomorrow.  I’m going to share with you some tax-saving tips and how to find an accountant that rocks.

by Michelle Loretta

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January 26, 2012 - 7:57 am

Em Humphries - Thank you for taking the time to do this for us, Michelle! This is so helpful to me for regrouping and moving forward! xoxo

No “Mom” Excuses

Thursday, January 19, 2012 Posted in Mompreneur

We’ve been talking about what it’s like to be a parent and run a business over these last 2 weeks.  Today will be the last post (for now) in this mompreneur series.  I’m sure the rest of you non-parents want to get back to business!  LITERALLY.

I have one very basic rule by which I live the balancing of kid(s) and a business.  It is…

Image: Creative Commons

Don’t blame your kids.

What does this mean?  It means don’t use your kids as an excuse for not getting your work done – ESPECIALLY with clients.  These excuses may sound like this:

I’m so sorry for being late, Jonny threw up all over my purse.

I have to flake again.  I can’t find a sitter.

I won’t be able to meet the deadline because Maddy isn’t napping well and I couldn’t get it done in time.

The reality of the situation…

The reality is that every insane thing is going to happen when you are juggling your own business and children.  There are days that you will have to jump through hoops of fire to get it all done.  Children will be sick. Children will not nap.  Babysitters will flake or quit or get into an accident.  All of these things will make it incredibly challenging (and at times, impossible) for you to get your job done.  But, don’t blame your kids.

There are 2 reasons you shouldn’t blame your kids…

1) It’s not fair to your kids.

It may be the best excuse, the actual excuse, for not getting your work done.  But, it’s unfair to your children to blame them.  You will begin to resent them.  You will begin to see them as the barrier between you and a super-successful business.  And, it’s not their fault.  They didn’t set out to make your day impossible.  They’re just doing what they do: be kids.

2) It sounds like a weak excuse.

All parents know that this is not a weak excuse… kid sh*t happens.  But as a business woman, you need to remember business is business and personal is personal.  If you rely on your kids as an excuse you begin to sound like the grade schooler who tells his teacher “The dog ate my homework.”  It might be true, but it doesn’t come from a position of strength.  It sounds disorganized and irresponsible.

What do you say instead?

Be honest, but don’t blame your children.

I’m so sorry for being late.  I didn’t calculate how much time it would take me to get here.

I’m sorry I won’t be able to attend the networking event as planned.  I have other obligations.

I won’t be able to meet the deadline because didn’t schedule appropriately.  I want to make it up by doing this…

You see how all of the above ‘excuses’ are so much more professional?  You are taking responsibility for your business.

Exceptions…

You can talk amongst colleague-friends about the trials and tribulations of being a parent.  There is very little judgment here.  If a good wedding industry friend is having childcare issues, I’m going to relate with her.  She can share this with me.  But, I’m not going to open up all of my personal family-balance challenges with a potential client or a colleague whom I don’t know very well.  It isn’t professional.

Taking responsibility…

As a mom, you’ll get good at damage control when it comes to balancing your kids and your business.  You’ll be good at finding that replacement sitter in seconds flat.  You’ll become good at wiping up vomit before it ruins your client’s fabric swatches.

You’ll also see that you are responsible for this damage control.  (That’s your job – for better or worse – as a mompreneur.)  And, you’ll take responsibility for all of it.  Ultimately, it doesn’t matter what forces try to block us from doing our work.  Business is business.

Over time, I came to learn that only I was responsible for my business actions (not my child; not an employee).  I wouldn’t dream of blaming my kid for ‘getting in the way’ of my business.  Not only because it’s unfair to them – but also because it’s MY JOB to make sure that I can put out the mompreneur fire drills that happen daily.

What do you think about this?  How often do you use your kids as an excuse?  Is it fair to them?  To yourself?

by Michelle Loretta

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How Becoming A Mom Made Me a Better Businessperson

Tuesday, January 17, 2012 Posted in Mompreneur

Last week, I discussed some things that I would have done differently as a new mom(preneur).  Many of you expressed having had similar experiences as a new parent.  And, some of you yet-to-be-mom(preneurs) expressed “YIKES!  I’m scared!  Better rethink my plan!”  I hope I didn’t scare too many of the yet-to-be mom(preneurs) out there.  There are many ways I became a much better business owner when I became a mother.

I became much more efficient.

Before having Lili, I had allllllll sorts of time… Time to work ALL the time!  I think if I actually spent all that time working, it would be a different story.  But, often when we work all the time, we aren’t really working.  We are often wasting time.  The incredible thing is when you are forced to smush your week into 10 hours or 20 hours or 30 hours (and eventually 40 hours) it’s incredible how efficient you become.  There is no time for nonsense.

I became much more intuitive. 

Along with efficiency came intuition.  When I became a mom, I didn’t have time to deliberate on every single decision.  I got really good at trusting my gut and going with my instinct.  I no longer question every single little tweak to my business.  This intuition has saved my sanity and given me piece of mind.

I established better work-life boundaries.

I became better at setting boundaries between my personal life and my work life.  This didn’t happen overnight, tho.  I had to evolve into this after being a parent for a couple years.  Initially, I was all over the place – without boundaries – and not taking enough care of myself.  After a while, I became better at turning off the computer before dinnertime and LEAVING it off.  I became better at closing the office door and not going back in.  I became more confident in telling “no” to the client when the request just wasn’t realistically feasible or good for business (or my sanity).  I became better at prioritizing.

One more thing…

Some people will say that you become better at multi-tasking as a new parent.  I think multi-tasking is not effective.  As a new mom I thought I was good at this.  I would even brag about it.  But, the truth is, when you’re doing 10 things at once, you aren’t really doing any of them well.  What I came to see on the days I was attempting to work while simultaneously take care of my child, I wasn’t giving either the attention they deserved.  It was hard, frustrating, and exhausting for everyone involved.

How about you?  What are some traits, characteristics, or work habits that you picked up when you become a mom?

by Michelle Loretta

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January 17, 2012 - 11:09 am

Planner’s Lounge - This is so great Michelle. I can’t believe how much more efficient I am compared to before I was a mom. What in the world did I do with all that free time? It also took me a few years after having a child to establish work-life boundaries but my family and I are both happier because of it. I’ve also learned to say “no” more often to things that aren’t good for me, my family, my goals or my business.

January 17, 2012 - 3:35 pm

Sharon Alexander - Excellent! In my case, have not kids, but losing a key employee forced me to to the same. Kills me that I realize how much time I’ve wasted being “busy”, but not productive. I still have to think about it constantly to keep on task.

January 19, 2012 - 10:54 am

DeVonda - Excellent article! However, I’m not at the point where I’ve been able to balance my work and personal life since having our new baby (now 8months). It’s been very hard. It definitely requires more help from the spouse to allow me to still work in the evening and weekends doing event planning. I personally think that’s where my issue lies.
And lastly, you’re absolutely RIGHT, if you’re multi-tasking (you’re really not completing anything). That’s not something I’ve ever wanted to admit out loud.

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