SETTING UP A HOME OFFICE

May 14, 2012, Filed under: Taxes,Tips — Evlyn @ 1:39 pm

 

Select the Right Spot

The space you choose for your home office should be well lit and properly ventilated, with enough room for furniture, supplies, storage compartments and other items you use on a regular basis. Watch window placement for glare issues. Keep in mind your space needs to be used only for business purposes and make sure it’s an area that will not become over run with personal use.

Your home office should also be equipped with sufficient electrical outlets and connections for your telephone, fax and Internet access. Any costs incurred to add needed outlets and other setup needs are 100% tax deductible as direct repairs.

The Furnishings

Determine what kind of furniture you’ll need, file cabinets, printer stands, desk & chair, and any other items needed to organize records, tools and supplies. Review inventory of what you already have and determine the size of your room. This will make it easier to find an ideal layout and the square footage will be needed for preparing your tax return.

Next determine the equipment you will use and the electrical and space needs for the equipment. You will use some equipment less frequently than others, so consider ways to place items so that they’re easy to use.

Keep It Organized

Once your space is set up, take pictures showing the space as your office and file away with your tax papers to offer as proof of your claim. If customers visit your home office, an organized work environment makes a positive first impression about you and the quality of your services. Even if you never have visitors, taking a few moments to straighten up at the end of the day gives you a head start on tomorrow’s tasks. It also helps you avoid wasted time trying to located that needed stapler or hole punch.

Home Office Deductions

The Internal Revenue Service will let you deduct expenses related to that part of your home that you use exclusively and regularly for business. To determine the percent of use for business you need to compare square footage of the office space versus total square footage of your home.

Expenses that you will be able to deduct a % of include:

  • Mortgage interest and property taxes or rent
  • Home or renters insurance
  • Certain home repairs and maintenance items
  • Utilities necessary to your business (Note: The first phone line into the home is not deductible.)

For more information about setting up a home office or home office deductions, go to our Facebook page and message us, or send an email request to carlilesos@yahoo.com.

 

Balance Sheet Accounting

May 7, 2012, Filed under: Bookkeeping — Evlyn @ 10:53 am

 

Too often in business the balance sheet is neglected. The balance sheet  is one of three important informational statements for your business.  It is a report that will show you the value of your company.

The balance sheet has an important function at tax time. Here is a balance sheet review:

 

Balance Sheet Assets

The balance sheet assets area tells you and others what your business owns.  It includes:

  • bank account and monies owed to your business
  • inventory owned
  • a summary of equipment, furniture, vehicles, and buildings owned

 

Balance Sheet Liabilities

The balance sheet liabilities area tells about what your business owes.  It includes:

  • money owed to vendors and other companies
  • money owed to the bank and others either line of credit or loans
  • money owed for sales tax and payroll taxes

 

Balance Sheet Equity

The balance sheet equity area tells about what your business is worth.  It includes:

  • details on what you, the owner, has put into or taken out of the business
  • a running total of income earned by the company
  • the net income earned in the current year

 

At year-end the balance sheet serves as proof to the entries for income and expense.

 

The balance sheet equation is Assets = Liabilities + Equity.

 

Each area of the balance sheet can be proven with backup papers.

  • Bank statements prove checking, savings and loan balances at year-end.
  • Unpaid invoices to your customers or bills from your vendors show outstanding monies due.
  • Government year-end reporting proves what amounts are still owed in taxes.

This leaves the equity section, which includes net income earned in the current year.

 

For more information about balance sheet accounting or balance sheets go to our Facebook page and message us, or send an email request to Evyln Carlile at Simple Office Solutions carlilesos@yahoo.com.

Do You Need a Separate Checking Account for Your Business?

April 30, 2012, Filed under: Bookkeeping — Evlyn @ 12:05 pm

 

A question that I often receive is, “Do I need a separate checking account for my business?”

 

It is highly recommended to have your business money in a separate account.  By setting up a separate bank account, you have established a record of business income and expense that will help at month end with your bookkeeping.

 

Your bank statement at month end gives a record of income and expenses directly related to your business.

 

All monies, including cash, received by your business should be deposited into a separate bank account.  A detailed deposit slip will give you a record of who paid you for your services.  Total your business income deposits on your bank statement. This will give you the total sales for the month.

 

If money deposited is from other than a sale, make sure to make the proper notations and keep backup paperwork that proves the deposit was from non-income accounts.  Some examples would be:

  • Transfers of funds from personal bank account or line of credit
  • Refund from returns, refunds or rebates – keep copy of receipt or check

Checks and debit card purchases give you a record of your expenses.   Using duplicate checks or keeping check stubs from computer generated checks are a secondary proof of payment for receipts and bills.

 

If your main source of money is being deposited into this business account, avoid the temptation of paying personal bills with this account.  Instead, transfer funds from your business account for personal expenses to keep your records clean.  Using transfers will also prove where the money in your personal account came from.  Make sure to keep deposits that aren’t transfers as proof of non-income deposits or a record of other income outside of your business.

 

Record business transactions as they happen in your bookkeeping system.  At the end of the month, reconcile with your bank statement as a review and check that you have all business transactions recorded.

 

The same theory holds true for credit card purchases.  Whenever possible set one card aside for business use only.

 

For more information about separate bank accounts, business transactions, or business income go to our Facebook page and message us, or send an email request to Evyln Carlile at Simple Office Solutions carlilesos@yahoo.com.

Simple Record Keeping Strategies

April 16, 2012, Filed under: Bookkeeping — Evlyn @ 10:08 am

 

Organization is the name of the game. If you don’t have a solid record keeping strategy, you will struggle to be tax ready. Bookkeeping will be a nightmare if you don’t have an effective filing system.

 

Here is some simple record keeping strategies to follow:

Record transactions by category:

  • All money received from clients
  • Schedule C categories for expenses

 

Filing System Categories

 

File in a way that your receipts are easy to access should you need them – whether by month, category or vendor.  In an audit, the request is usually for a particular category.

 

Categorizing Expenses

  • Advertising – promos, sponsorships, website
  • Commissions or fees paid out
  • Insurance – business liability, extra riders on property
  • Interest – business loans, credit card finance charges
  • Legal / Professional
  • Office expense
  • Supplies
  • Rent
  • Licenses
  • Taxes – personal property, sales/use tax
  • Travel – meals separate from transportation and lodging
  • Utilities for business office outside of home
  • Educational expense – books, seminars
  • Bank and merchant fees
  • Cell phone %

 

Record all transactions from receipts and other source documentation affecting your business.

 

 Bookkeeping Spreadsheets and Accounting Software

  • Record by category of expense easy totaling at year end
  • Verify information with bank statements to ensure all transactions are recorded

 

Excel spreadsheet work great for categorizing and totaling. QuickBooks will take it further by offering reports during the year on profitability.

 

Special Transactions

  • Fixed Assets
  • Travel
  • Home office
  • Taxes

 

For more tax ready record keeping strategies go to our Facebook page and message us, or send an email request to carlilesos@yahoo.com.

Afraid of an Audit? Don’t Forget these Thirteen Deductions!

April 9, 2012, Filed under: Bookkeeping,Taxes — Evlyn @ 1:02 pm

 

Don’t mess with the IRS, but take every legal deduction you can!

That doesn’t mean you should cheat yourself, in fact tax law states that you are to report all income and all related expenses. In other words, you are required to file an honest tax return and have the paper work to prove all amounts reported on your tax return. Take every legal deduction you can.

 

Here are thirteen deductions that are sometimes forgotten or left off for fear of an audit:

  1. Home Office ~ This deduction is not limited to a full room. Your home office can be part of a room.   It must be a definable space that is exclusively used.  Take pictures of your space for future proof if needed.
  2. Office Supplies ~ Even without a home office you need certain supplies to conduct business: paper for invoicing, pens and pencils, calculator and the like are legitimate deductions.
  3. Furniture ~ Used in your home office will be depreciated over the life of the item as set by the IRS.  Keep a list of all furnishings in your office separate from other expenses as they are reported on a different portion of the tax return.  Also they have an IRS tax life of seven years and may be subject to capital gains if sold.
  4. Other Equipment ~ Equipment used in your home office (computer, fax, copier, printer) along with equipment used in your business have a IRS tax life of five years and need to be reported separately and depreciated over the life of the item.
  5. Software and Subscriptions ~ Off-the-shelf software along with industry specific magazine subscriptions are business expenses.  Also don’t forget the books and other reference materials purchased during the year.
  6. Mileage ~ The IRS loves documentation, so keep a notebook in your vehicle to record the date, mileage, tolls, parking costs and the purpose of your trip. At the beginning of the year write down the odometer reading so you will know total miles driven during the year. For 2012, the mileage rate is .55 ½ cents. If you have a home office, the mileage deduction is allowed for any miles driven with a business purpose.  If you don’t have a home office, the first and last stops of the day are considered commute miles and are not deductible, but the total is needed at year end.
  7. Travel, Meals, Entertainment ~ Business travel (seminars, conferences, trade shows, etc) have deductible expenses. Travel to and from along with necessary overnight stays count even if you decide to stay an extra day for sightseeing. You want to pick up a brochure or agenda to prove that the basic reason and major part of the time was spent on business related activities. Meals count for travel or when meeting with clients, vendors, or networking.  Be sure to document who and the business purpose on your receipts to take the deduction.
  8. Gifts ~ Gifts are limited to $25 per person per year.
  9. Insurance premiums ~ If paying your own health insurance premiums, these costs are deductible on your tax return as well but there are limits.  The deduction can’t be more than your business’ net profit and it’s not allowed if you were eligible for other health care coverage, including that offered by your employed spouse’s medical plan.
  10. Retirement Contribution ~ Check with your financial advisor to find out if any deductible plans are available to you. You always have the deduction of any Traditional IRA contributions.
  11. Social Security ~ You are now responsible for your own social security tax – all of it.  This amount will be added to your tax liability. It is calculated on a % your net income at the rate of 15.3%
  12. Telephone Deduction ~ Business long distance calls that you make for business from home are deductible. When your bill comes in, circle the business-related calls and other expenses, total them up and keep a copy.  Also don’t forget to get receipts for any fees related to business calls or faxes sent while traveling.
  13. Child Labor ~ You can hire your children to work for you and save on payroll taxes until they reach 18.  Beware the job must be age appropriate and necessary to your business. Some examples would include handing out flyers and filing. The wage must be set to an appropriate value. You can’t pay them $15 per hour for minimum wage jobs.  You must also keep records of time and payment made. Write a check and open a separate account for your child to learn about money management while learning the family business.

If you are not taking all of your deductions because you fear an audit or if you have additional questions, go to our Facebook Page and message us, or send an email to carlilesos@yahoo.com.

Is My Telephone or Cell Phone Tax Deductible?

April 2, 2012, Filed under: Taxes — Evlyn @ 9:32 am

 

By Evyln Carlile & Shelly Cedarblade

 

The answer should be simple, you need a telephone to operate your business and therefore it should be deductible as an “ordinary and necessary” business expense. However, as you may have guessed, it is not that simple!

 

IRS Deductions

The IRS deductions rules state that “the cost of basic local telephone service (including any taxes) for the first telephone line you have in your home, even though you have an office in your home is not deductible.”

However, you can take the telephone deduction for the business portion of expenses associated with this first phone. Some examples of acceptable telephone deductions are:

  • Long distance business  calls
  • Caller ID
  • Answering machine
  • Cost of the phone (possible if additional features needed for business)

You can deduct business expenses associated with a second phone line exclusively for your business.

 

Phone Tax Deduction: Bundled Package

If your telephone, internet, and cable television bill is bundled together in one bill, how do you break out the cost of your second telephone line?  You will need to get pricing from your carrier to verify how much of the bill is allocated to business related shared expenses.

     

    Cell Phone Deduction – Business Use

    To determine cell phone usage you will need to get an itemized bill from your carrier to help prove business use versus personal use.  Make sure to indicate business calls with client names for incoming and outgoing calls to your cell phone.  Take the total business call minutes divided by total minutes used to determine the percentage of use and the appropriate cell phone deduction.

     

    Cell Phone Deduction – Cost of Cell Phone

    The cost of a cell phone is a tax-deductible business expense depending on how much you use your cell phone for business and how much you use it for personal use.

    Determine the percentage of the cell phone monthly bill and add any additional expenses that are directly related to business.

    Remember all expenses claimed on your tax return need to be proven by backup paper work with explanations regarding the business reason for the expense.

     

    If you have more questions regarding the telephone deduction, the cell phone deduction, or IRS deductions in general, go to our Facebook Page and message us, or send an email request to carlilesos@yahoo.com.

Can You Take the Clothing Tax Deduction?

March 26, 2012, Filed under: Taxes — Evlyn @ 10:08 am

 

By Evlyn Carlile & Shelly Cedarblade

 

I have heard several times this year, “Everyone I know is taking the tax deduction for clothing.” Just because everyone you know is using work clothes as a deduction doesn’t mean it is legal! The IRS does allow a deduction for the cost and maintenance of work clothing; however, there are conditions that apply to this deduction.

You can take the clothing tax deduction if the items you must wear to work meet two specific requirements:

  1. Your employer requires that you wear specialized clothing to work. This requirement is most commonly due to safety issues.
  2. The clothing must not be suitable for everyday wear.

Common Clothing Deduction Occupations

  • Those who work in a job that requires a uniform, such as police officers, nurses or bus drivers, can commonly deduct these uniform costs.
  • Additionally, workers in the construction field are often allowed to take deductions for the purchasing of hard hats, steel-toed shoes and other protective wear.

It is not enough that you wear clothing that is appropriate for your profession, even if it is not your normal attire. The clothing must be specifically required by your employer. Even if you do not wear your work clothes away from work, you cannot take the clothing deduction.  The clothing must not be suitable for taking the place of your regular clothing.

In respect to sole proprietors, the rules are the same. Only clothing that is purchased and worn for safety reasons can be considered a clothing tax deduction.

One of the best examples I know is the regarding military attire. Personnel are required to wear fatigues, but they are not restricted from wearing them off base. This differs from their dress uniform. Military personnel have restrictions on where and when they can wear their dress uniform. In this example, fatigues cannot be considered as a justifiable clothing tax deduction, but the dress uniform is.

How about a white cap, white shirt or white jacket, white bib overalls, and standard work shoes a painter wears on the job? Nope, it is not distinctive. However, required protective clothing like safety boots, safety glasses, hard hats, and work gloves are considered a legitimate clothing tax deduction.

If you have more questions regarding clothing tax deductions, go to our Facebook Page and message us, or send an email request to carlilesos@yahoo.com.

IRS Tips for Reducing Tax-Time Stress

March 19, 2012, Filed under: Taxes — Evlyn @ 2:29 pm

 

Tax preparation doesn’t need to give you a headache. There are several ways to make it easier on yourself. The IRS offers three tips to help make your tax-filing experience a breeze this year.

 

Don’t procrastinate. Resist the temptation to put off your taxes until the very last minute. Rushing to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.

 

Don’t panic if you can’t pay.  If you can’t pay the full amount of taxes you owe by the mid-April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. More than 75% of taxpayers eligible for an Installment Agreement can apply using the web-based Online Payment Agreement application available at www.irs.gov. To find out more about this simple and convenient process, type “Online Payment Agreement” in the search box at www.irs.gov.  You can also contact the IRS to discuss your payment options.  You can also ask your tax preparer about this.

 

IRS Tax Extension
Request an extension of time to file – but pay on time.  If the deadline clock is ticking, you can get an automatic six-month extension through Oct. 15. However, this extension of time to file, which must be filed or postmarked by the April 17 deadline, does not give you more time to pay any taxes due. If you have not paid at least 90% of the total tax due by the April deadline you may also be subject to an estimated tax penalty.

 

You can obtain a tax extension through Free File at www.irs.gov/freefile. Or, file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, available for downloading at www.irs.gov or call your tax preparer to get this done in a timely manner.

 

If you are in a panic and have questions, go to our Facebook Page and message us, or send an email request to carlilesos@yahoo.com.

Tax Advantages of Hiring Your Children

March 12, 2012, Filed under: Taxes — Evlyn @ 9:53 am

 

By Evlyn Carlile & Shelly Cedarblade

 

Hiring your children as employees can be beneficial for both your children and your business.  If you are a sole proprietor, there are tax advantages for your business and your children will gain valuable work experience working for you.

 

Tax Advantages to Hiring Your Children 

  • If you are a sole proprietor, you do not need to pay Social Security or Medicare taxes until your child turns 18.
  • Also, as a sole proprietor, you are not required to pay federal unemployment taxes until your child turns 21.
  • Since you will be withholding income taxes, you will be required to give them a W2 at year end. Ask your tax preparer for filing requirements for the upcoming year.

 

Benefits to Your Child

Children who work for their parents can learn valuable skills and gain job experience for the future.

They can learn about earning money and saving for the future.  Once a child earns wages, they can establish an IRA and begin saving for their future. Consider opening up a Roth IRA if your child may use the funds early for either college or purchasing their first home.

The child employee can get an insight into what you do and may even develop a love for the family business.

When self employed taxpayers hire their own children the wages must be reasonable for the work performed and records must be maintained to support the payment and reasonableness of the payment.

 

Treat Them like Employees

Hiring your children can be a challenge.  Keep in mind that you are their employer when they are working for you.  Here are some tips to ensure a smooth transition:

  • Discuss what the job entails and pay them based on industry standards.  Write up the employment terms you’ve both agreed to and sign them.
  • Have them fill out time cards showing hours worked and jobs performed.
  • Pay them regularly by business check (weekly, biweekly or monthly) and have them put that money in a savings account in their name.

For more information about the tax advantages of hiring your children go to our Facebook Page and message us, or send an email request to carlilesos@yahoo.com.

Will I Get Audited? Errors That May Get you Audited

March 5, 2012, Filed under: Taxes — Evlyn @ 11:00 am

 

Will I get audited?  This is a question that many small business owners often ask themselves.  Be careful when it comes to your deductions. The IRS looks for higher-than-average deductions in each category as a signal that things may not be right.

 

The most common deductions that stand out as potential problems are travel deductions, meal deductions, and business mileage. These deduction categories are all legitimate, but make sure you back all your claims up with documentation.

 
Deducting Business Meals, Travel and Entertainment
Schedule C offers many tax deductions for the self-employed; however beware of claiming excess deductions.  A large write-off in the area of business meals, travel, and entertainment could set off an alarm, especially if the amount seems too high for the business. Auditors are on the lookout for personal business meals or claims that don’t satisfy the rules.

 

Business Meals

To qualify for a business meal or entertainment deduction, you must keep detailed records for each expense.  You will want to document the following: the amount, the place, the people in attendance, the business purpose and the nature of the discussion or meeting. Also, you must keep receipts for expenditures over $75 or for any expense for lodging while traveling away from home. Without proper documentation, your deduction is lost.

 

Travel Deduction – Business Training or Business Meeting  

To qualify for a travel deduction, you must also keep detailed records with proof of the business purpose for the trip.  Your travel must be business first.  A trip to attend a national training session or meeting with an out of town client is deductible.  Transportation to and from, lodging as needed, and meals are all deductible.  Proof for this trip would include notes about the client, an agenda or programs from the training sessions. Any entertainment or sightseeing is not deductible.  You can take extra time for personal vacation but the meal deductions and lodging for that time period are not deductible.  The transportation to and from the area is still deductible in full.

 

Travel Deduction – Family Vacation

A family vacation is planned, and you decide to check out local competition for ideas to take back home.  This does not qualify the trip as a business trip; however you can deduct expenses that occurred because of the research time.

 

To avoid the constant question of “Will I get audited?” it is imperative to have strong documentation confirming all legitimate deductions.

 

For more information about meal deductions, travel deductions, and business meals go to our Facebook Page and message us, or send an email request to carlilesos@yahoo.com.