Guest post by Rebecca Still.

Many of you are frantically gathering your year-end tax information in order to prepare your tax return.  You may have made commitments last year to be more organized and not allow yourself to be in this situation again.  Yet, here you are again.  Why not take action and do it this year?  

One of the biggest mistakes taxpayers make is holding on to records of nondeductible expenses such as clothing, groceries, personal phone bills, etc.  Instead of hoarding all of those grocery receipts, focus on organizing the documents related to your current year’s income and deductible expenses, especially tax-deductible expenses paid by cash.  These are the records the IRS will ask for if you’re ever audited.  

Consider keeping a small calendar as a log for mileage driven related to business.  I find this to be the most overlooked area.  When you consider the business mileage deduction to be over .50 cents per mile, you can lose out on a huge deduction if you’re not recording every mile driven for business.  This includes your daily or weekly trip to the bank, post office, etc.

Compile receipts in a central location and create a filing system that works for you.  Depending on the size of your business it may not be necessary to create a file for each customer or vendor, but you do need to have an individual file for all bills and/or receipts.  For instance, if you purchase products for resell, you may need a folder for each vendor you purchase products from, and place all other invoices in a folder labeled “Other Bills”.   You may need to create a separate folder for each type of expense or income.

I believe an even better system may be to create electronic storage of records.  There have been questions regarding this, but according to IRS Rev. Notice 97-22 it is acceptable to scan and digitally store records, but you must be certain that these are legible and available.  You may want to read the notice for yourself. Read page 9-10 regarding the IRS requirements.   I used a local merchant, Northstar Global to purchase a scanner, centralized storage unit, and multiple backup units to store my information and they have offered great service.  You may want to find someone local, or give them a call at (417) 326-2020.

If you are not using an accounting system (i.e. Quickbooks, Microsoft Accounting, Peachtree Accounting,  etc) you may want to start.  Many times, it may be the help you need to track all of your expenses.  There is of course an expense in using a software system, but in the long run the expense can be outweighed by the additional deductions being tracked.

Remember, never put off until tomorrow what you can do today.  Start getting organized!  Next January you’ll be glad you did.

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Rebecca Still is an Accountant and Tax Preparer from Bolivar, Missouri. Rebecca has been in the accounting field for over 20 years. Rebecca and her husband also own an alternative health business; Still 4 Him, Inc. and operate a not-for-profit ministry to persons with developmental disabilities; First Serve Opportunities. Together they have four children and have been married for 19 years. You can reach Rebecca at (417)326-7845.

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Tags: business tax tips, rebecca still, receipt management, record organization

Guest post by Rebecca Still.

Deadline…December 31st is the deadline for expenditures to be considered in the current tax year.  If you’ve been putting off purchasing equipment you may want to consider the tax savings and purchase by this date.  You will want to make certain though that the vendor will charge your credit card by this date.  Many times a person waits until the last day to order and the charge does not go on until January.  If you’re taxed on a cash basis and paying with cash or check, you will need to pay by the 31st.   If you’re leasing the equipment, the contract will need to be signed by the 31st.  

There are a number of things you can legally do to reduce your tax liability. This is especially true as you approach your year-end tax deadline. Some of the most common things you can do at year-end include:

• Deferring income
• Paying bills early
• Buying supplies and equipment
• Investing in a retirement plan (you have until April 15th to contribute)

 
Keep up-to-date financial records.
There’s nothing worse than sorting through a shoebox full of receipts to patch together your company’s tax information. Keeping your company’s financial records organized and current makes your life a lot easier when tax season rolls around. More importantly, it lessens the chance that you will miss legitimate expenses due to lost receipts. Remember, every dollar of documented expenses translates into one less dollar of taxable income.

Hire a professional to prepare your tax return.
Paying for professional tax preparation can save tax dollars in the long run.  Professional tax preparers specialize in helping businesses minimize their tax liability. No matter how good your intentions, as a business owner you simply do not have the time to stay current on the ever-changing list of tax regulations that tax preparers deal with on a daily basis. Although there are many tasks you can do yourself, tax preparation is one area where it pays to leave it to the pros.  It also pays to find a reputable preparer.  Ask other business owners who they are using.

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Rebecca Still is an Accountant and Tax Preparer from Bolivar, Missouri. Rebecca has been in the accounting field for over 20 years. Rebecca and her husband also own an alternative health business; Still 4 Him, Inc. and operate a not-for-profit ministry to persons with developmental disabilities; First Serve Opportunities. Together they have four children and have been married for 19 years. You can reach Rebecca at (417)326-7845.

 

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Tags: business tax tips, expenditures, rebecca still, tax liability

Guest post by Rebecca Still.

Buy now or later…. If you’re considering the possibility of purchasing business or farm equipment* in the next four to six months and cash is running low, you might consider initiating a lease or purchasing it on credit by December 31st.   IRS Tax code “Section 179” allows qualifying property to be expensed entirely or a higher portion to be expensed along with regular depreciation.  The Section 179 limit for 2008 is $250,000 (up from $108,000 in 2007).  Also, in 2008 there is a special depreciation allowance of 50% of the property’s depreciable basis after any section 179 deduction and before figuring your regular depreciation deduction.   

Section 179 deductions are also limited by taxable income derived from the active conduct of all trades or businesses including: wages, salaries, partnership income, corporation shareholder income, and gains from sales of business assets.   It does not include rental or investment income.  A husband and wife, whether filing joint or separate returns, are treated as one taxpayer for the $250,000 limit.

You can find tax savings calculators on the Internet, but basically you can figure 35% (15% FICA and 20% Income) tax savings on the amount you choose to expense.   For instance, if you’re considering the purchase of office equipment totaling $4,000, your tax savings would be approximately $1,400.  In most cases that tax savings is greater than the interest amount you will pay over the course of the lease or loan.  Of course you need to avoid loan scams that charge an extremely high rate of interest (i.e. payday loans, car title loans, etc.)  

In the case of a lease that is initiated in prior to January 1st, you have the option to expense the entire amount in the year of initiation or deduct the payments over the course of the entire lease.  

*Vehicles have additional limitations; please talk to your tax advisor if you’re considering the purchase of a business vehicle.

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Rebecca Still is an Accountant and Tax Preparer from Bolivar, Missouri. Rebecca has been in the accounting field for over 20 years. Rebecca and her husband also own an alternative health business; Still 4 Him, Inc. and operate a not-for-profit ministry to persons with developmental disabilities; First Serve Opportunities. Together they have four children and have been married for 19 years. You can reach Rebecca at (417)326-7845.

 

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Tags: business tax tips, deduction, depreciate, rebecca still, section 179

Guest post by Rebecca Still.

Many entrepreneurs spend a lot of time planning before starting a new business; looking at the potential market, developing a business plan, create a marketing strategy, etc.  They make certain to have all of the computer hardware and software necessary and yet many times they overlook the need for the basics of tracking income and expenses.

During the early months of tax season I usually have a number of people walk into my office and say something like this, “I started a business last year.  I really didn’t make any money and I haven’t kept good records.  Do I need to file a tax return?”

Understand I’m a tax preparer that believes in only paying Uncle Sam what’s due to him.  I don’t believe in cheating or being dishonest, but I think if most business owner’s were to keep good records, they could save tax dollars in the current tax year and possibly in the future.  

Here are three deductions that are many times overlooked or not substantiated well:

1. Mileage Deduction – In the latter part of 2008, the standard mileage rate is .58 ½ per mile (Jan thru June rate is .50 ½ ).  If you drive an average of 100 miles per week, your annual deduction could be $3,042.  If you were to drive an average of 300 miles per week, your annual deduction could be $9,126.  As you can see, it doesn’t take much driving to obtain a substantial deduction using the mileage rate. 

You may be saying, “I really don’t drive that many miles for my business”.  Yet, if you were to log the miles driven to pick up office supplies, go to the bank or post office, or trips to see your accountant you would find that it is worth tracking business miles.

2. Home Office Deduction - The home office must be a separate area used exclusively for business.  To claim your home office deduction, find the square foot percentage of your home office in relation to your home.  Then use this percentage for deductions on mortgage or rent, electricity, insurance, internet services, etc.   One of the benefits of using a home office is that any miles driven to and from the “office” for business purposes is deductible.  

3. Depreciation Expense – In 2008, the IRS has increased the amount of depreciable items that can be expensed 100% to $250,000.  This is called the Section 179 deduction and means that computer equipment, furniture, even software can be totally expensed in the current year.  Congress also passed a 50% “special” depreciation deduction in 2008.  Eligible properties that can be used for this deduction include machinery and equipment (vehicles over 6,000 lbs), furniture and fixtures, and most storage facilities. Examples can include other vehicles and computers.  This makes for a great tax planning tool. Let’s say you’re looking at a substantial profit this year and you need to make some capital purchases, you may want to look at purchasing them prior to December 31st.  

In many cases there may be other specific regulations that apply to your situation.  If you’re not sure, check with your tax preparer for assistance in making major financial decisions.

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Rebecca Still is an Accountant and Tax Preparer from Bolivar, Missouri.  Rebecca has been in the accounting field for over 20 years. Rebecca and her husband also own an alternative health business; Still 4 Him, Inc. and operate a not-for-profit ministry to persons with developmental disabilities; First Serve Opportunities. Together they have four children and have been married for 19 years. You can reach Rebecca at (417) 326-7845.

 

Rebecca will appear on Barfield Management on a monthly basis to give business tax tips.

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Tags: business tax tips, expenses, income, rebecca still