Yes, it’s tax time again. As a self-employed business owner, it’s important for you to have a handle on your business and know what is deductible and what isn’t.
Invariably when I talk about taxes with creative entrepreneurs, someone will tell me they have an accountant. “Terrific,” I say. “But what does she know about your business in particular?” You go to an accountant because she knows taxes. She can be very knowledgeable about small businesses, but she cannot know the nuances of every type of small business. She works with what you give her. That’s why it’s important for you to do your own research, understand tax strategies and keep track of deductions to which you are entitled. Here are nine tips for maximizing those deductions. To be sure that these apply in your particular instance, be sure to discuss with your accountant.
IAPQ member and CPA Veronica Wasec recently wrote about 10 common mistakes that small business owners make with their accounting and QuickBooks®. As a Certified QuickBooks® ProAdvisor, she’s worked with lots of small business owners, including quilters, for more than 20 years. Here are five of the mistakes she often sees business owners make:
1. QuickBooks® is not set up properly for the business. This causes small business owners to spend a lot of time getting information out of QuickBooks® or tracking information manually outside of QuickBooks®. After you understand how information is accumulated in QuickBooks® primarily by the use of projects, items and the chart of accounts, you can set up QuickBooks® specifically for your company and your needs. Once it is set up properly, you can use reports that show you how much money you made by customer, by project or job, and by inventory or service items.
2. QuickBooks® is only used as a bookkeeping tool rather than as a way to manage business finances. Many small business owners use QuickBooks® only as a bookkeeping tool – to capture their daily transactions. Unfortunately, they don’t review financial reports such as the Profit & Loss, the Balance sheet, and key reports such as the accounts payable aging, accounts receivable aging and several types of profitability reports. To manage your business effectively you need to have timely and relevant financial information available to you and you need to review it on a timely basis.
3. Bookkeeping is not kept up-to-date. Keeping your bookkeeping up-to-date can be a thorn in your side, but it is a necessary function of running your business. Here are a few tips, whether or not you hire an outside bookkeeper:
· Set aside time on a weekly basis to update your books.
· Use a checklist to ensure that you record all your transactions.
· Be sure to have receipts for all of your transactions.
· Set up a filing system that is appropriate for the size of your business and file away all your receipts and documents.
4. Accounts are not reconciled. Many small business owners have messy balance sheets because they don’t reconcile their accounts. This includes reconciling bank accounts, credit card accounts, sales tax accounts and other accounts on a monthly basis to ensure that your financial data is accurate. If your financial data is not accurate then how can you rely on it to make decisions for your business?
5. QuickBooks® is out-of-date. Many small business owners use an outdated version of QuickBooks®. Why is this important? QuickBooks® does not support any versions older than three years. Also, newer versions of QuickBooks® allow for automatic downloading of bank and credit card transactions from the bank and credit card companies. Newer versions also have higher capabilities, for example QuickBooks® 2011 version allows for batch invoicing – a great time saver for companies that bill multiple customers for recurring fixed amounts (such as monthly support charges). Upgrading to a new version of QuickBooks® is very simple and generally only takes minutes.
The International Association of Professional Quilters offers resources and networking opportunities for you to create a success from your quilting business. Learn about all the benefits of IAPQ membership and join here.
As the year is winding down, you can still make decisions that may lower your tax bill. Here are five for you to consider with input from your accountant:
1. Review your business books. You need a clear picture of your earnings and expenses before you make any decisions. Ask your accountant or bookkeeper if you should be tracking something you aren’t.
2. Defer income. Unless you expect to make considerably more income in 2011 when our tax rates will likely be higher, you might want to defer income until after the first of the year. If this is the case, send out your invoices late this month so you won’t receive payment until January.
3. Increase your expenses. Stock up on business equipment and supplies before year end. Pay some of your bills early.
4. Contribute to your retirement plan. Review requirements for payments to your plan. If you don’t already have an individual 401(k), you may want to set up one before the end of the year.
5. Give. Charitable donations are tax deductible if you have a receipt.
These strategies apply differently to each business owner based on her particular situation. Since I’m not a financial professional, take time to discuss your strategy with your personal tax advisor.
The International Association of Professional Quilters offers resources and networking opportunities for you to create a success from your quilting business. Learn about all the benefits of IAPQ membership and join here.
Yes, it’s tax time again. As a self-employed business owner, it’s important for me to have a handle on my business and know what is deductible and what isn’t. Invariably at any quilt show when I talk about taxes, someone will tell me they have an accountant. “Terrific,” I say. “But what does she know about your business in particular?” You go to an accountant because she knows taxes. She can be very knowledgeable about small businesses, but she cannot know the nuances of every type of small business. She works with what you give her. That’s why it’s important for you to do your own research, understand tax strategies and keep track of deductions to which you are entitled. Here are some tips for maximizing those deductions.
1. Keep better track of your mileage. I’ve read that when you estimate, you actually underestimate. I use the Quilt Engagement Calendar in conjunction with the trip meter in my car. I set the meter to zero at the start of my trip and then enter the mileage in the calendar at the end, along with a notation as to the purpose of the trip. The IRS doesn’t care how you track your mileage, just that you have written logs. You can also track your public transportation costs in the same log.
2. Group your errands. The IRS allows business owners to deduct business mileage. For 2009, the rate was 55 cents per mile. (For 2010, the rate is 50 cents.) If you have personal errands, do them at the same time as your business errands.
3. Use the per diem rates for meals. The IRS has established per diem, or by the day, allowances for meals that self-employed individuals can use. At your option you can use either the per diem or actual costs, depending on which gives you the greater deduction. I find that in most cases, the per diem is better. Remember, that you can only deduct 50% of the per diem or actual meal costs. For per diem rates, refer to IRS Publication 1542, Per Diem Rates.
4. If you operate as a sole proprietorship, consider hiring your children aged 18 and under. You can get a deduction for their wages (up to $5,700 in 2009), and in most cases your children do not have to pay taxes on the wages. Details: IRS Publication 15, “Circular E, Employer’s Tax Guide.
5. Don’t forget about professional publications and dues. All the quilt and many other magazines that you buy are deducible if you use them in your business. Your IAPQ dues are also deductible.
6. And, if your books weren’t up-to-date or you are a shoebox records filer, vow to be better in 2010.
For more information, you can refer to IRS Publication 334, Tax Guide for Small Business. Also recommended is 422 Tax Deductions for Businesses and Self-Employed Individuals by Bernard Kamaroff, CPA, which you can find on the PQ Marketplace page of our web site. You can find your discount code on your IAPQ Members Page.
The International Association of Professional Quilters offers resources and networking opportunities for you to create a success from your quilting business. Learn about all the benefits of IAPQ membership here.
