Tax day is fast approaching. Being a business owner is wonderful in many ways, but it also comes with its own unique challenges. Taxes are one of them. Gone are the days of simple withholding and 1040ez filing. Now we're getting into itemized deductions, depreciation, business expenses and mileage. However, don't let this stop you from achieving your dream of owning your own business! With a few simple tools and minor changes to your normal routine, the 15. April no longer be a dreaded date!
Staying organized is the key to dismantling the upcoming tax season. Last minute scrambling for receipts and documents only makes things worse. Here are a few ideas that can help keep your organization organized, maximize your deductions, reduce the possibility of an audit, and help tax season breathe a little easier:
Separate business from pleasure
The easiest way to separate personal expenses from business expenses is to keep separate financial accounts (both bank accounts and credit cards). If you're not quite at the point of opening a second bank account, carry at least two credit cards: one for business and one for personal. This can be an added benefit if you personalize your card with an image or logo that represents your business. In many institutions, you can upload a picture to add to your credit or debit card. Use this feature to market your business.
Capture receipts
For those of you who keep receipts in a shoe box, get ready for the mess! Technology is evolving faster than most of us can keep up with. Fortunately, the IRS has gotten on the bandwagon and is accepting digital documentation for itemized deductions and expenses. There are many smartphone apps that allow you to take a picture of your receipt and record notes, categories, customer assignments, etc. Can add. Two of the most versatile, user-friendly and comprehensive are Expensify * and Expen $ er **. These two applications let you capture an image of receipts, add comments, and export information into useful reports. For those who entertain clients and have associated costs, these apps allow comments on meetings. This is extremely important when you write off these expenses.
Maximize the deduction for your home office
If you have a home office, you are entitled to substantial deductions. The IRS allows the deduction of certain housing expenses based on the percentage of space occupied by your office in your home. It is recommended to measure the exact dimensions of your office to calculate square footage. Be sure to document this with a sketch or a picture that has the dimensions. After you calculate the square footage, you can apply that percentage to your rent/mortgage payment and certain utility costs.
Simplify the use of your phone
This may seem like an obvious item, but I have been asked by several people how I itemize my phone as a business expense since it is also a personal use item. The easiest and best way I have found is to pick three months out of the year and run through the corresponding phone bills, highlighting personal and business phone calls. Some mobile phone providers offer an exportable phone bill (to an Excel spreadsheet) that you can use to edit the information to calculate phone usage. Otherwise, get out the old calculator and start adding. You can use these numbers to project an average usage for the year. If an audit is requested, have these bills ready with your notes to support your deduction.
Track mileage
If you use your vehicle for business purposes, you can make certain deductions based on its use. The IRS grants two options: Actual cost deduction or business use deduction. In my experience, the second option leads to greater deduction and is easier to follow. Depending on how detailed you are, you can keep a log in your vehicle and track your odometer at the beginning and end of every trip associated with your business. Another option is to use a mileage tracking application on your smartphone (there are a million of them with the same features and functionality. Rather than list them all, I recommend you try a few until you find one that suits you.). You must also log your mileage with this method. However, you can also save frequent addresses so that you can add trips on a regular basis. For me, I use an average approach: I manage a digital calendar where I add meetings and business-related outings. The key is to get your mileage before you start this project. At the end of the month, I go back and calculate the circulation distance for each entry and compare that number to the total usage. If you can do this for three months (either consecutively or not), you will get a fairly accurate percentage of business/personal use. The mileage is not only able to record the cost of the vehicle, but also a large deductible!
Organize dates and related expenses for future reference
As mentioned earlier, setting up a separate calendar for ALL of your business related appointments / travel / errands / errands / etc will make your life easier. This makes it easier for you to look things up later and, in particular, to prepare your taxes. If you ever have questions about where you went or who you saw, recording each activity as a calendar entry solves so many problems. In my practice, I even use these entries to record miles driven, notes about the event, and an indication of any costs that may have resulted from the event (d. H. discussion topics during a business lunch). Keeping everything in one place will definitely reduce the chaos and confusion that can occur during tax season.
Preparing taxes is never a fun project. Creating a plan for yourself to stay organized and track your business expenses will make this process much easier in the end. Stay ahead of the game by carefully researching available deductions. There are so many resources for the self-employed and small business owners. The Small Business Administration (sba.gov) is an excellent resource to find more information about filing taxes. Even recommendations for local tax professionals who can help.
For more solutions to staying organized and efficient, feel free to contact me at [email protected].
Columnist Jessica Baggot lives near San Francisco, California, and works as an independent organizational development consultant. Specializes in efficiency and productivity advice to help small businesses focus their efforts to increase revenue. Jessica attended the University of California at Davis, where she was present studied psychology and international relations.