It’s a new year with new opportunities for growth. Unfortunately, the more our business grows, so does our receipt stack. There is no better time to get tax-ready than from day 1! Make sure to grab a pen and take some notes. We will be covering a lot of information, so sit back and get comfortable.
*Note: I am not a professional and am not licensed to give tax advice. The information in this article is based on research and personal experience. If you have any specific questions you should seek the advice of a professional tax consultant.
Knowing What Qualifies As An Expense
One commonly asked question I often hear is “What can I write-off?”
Honestly, it would be impossible to list everything because it depends business to business, but the following categories will give you a good idea of where to start. If there is anything you’re unsure about contact your tax consultant.
*Note: It is important to note that you can not claim the full amount of an item’s value if you use it for both professional and personal purposes. If you use something, such as a laptop, for personal use and for work you would not claim the full value of it on your taxes. Though it would be common to claim half of the value, your tax consultant could advise how much to claim for it.
- Office Desk/Chair/Lamp
- Camera (if applicable to your business)
- Telephone (You could only claim the full amount of the bill each month if it is a line used exclusively for work.)
- Printer Paper and ink
- Stapler, paper clips, tape, post its, notebooks, pens, etc…
- Shipping labels, boxes, envelopes, stamps
- You can claim your mileage, but you need to record everywhere you go that is business related, the date and miles traveled if you are to claim it.
- Food while traveling for work/at a meeting
- hotels for traveling for work
- Flights for work
- Banners, business cards, signs
- Social Media ads
- Uniforms/Company Logo clothes
- Starter Kit
- Samples, catalogs, order forms
- Website fees
- Bank charges (monthly fees if applicable)
- Square/Paypal Fees
- Vendor event registration fees
- Folding tables, table cloths, canopy
- Other display items
- Wagon or Dolly
- Food you eat at the event
- Personal development books
- paid seminars/webinars
- training retreats
This is something you should talk to your tax consultant about to make sure everything, in your situation, is on the up and up. However, if you have a home office that is used for business- and ONLY business- you would be able to write off a portion of your rent. (Meaning no kids play in there, your spouse doesn’t occasionally use it for their work, you don’t do your yoga in there… etc.)
You would have to calculate the square footage of your house and calculate how much your rent is per square foot by dividing the cost of your rent by how many square feet make up your house. You would then multiply that amount by how many square feet make up your home office.
*Note: in order to claim an expense, you must save the receipt. No receipt, no claim!
How to Keep Track of Your Expenses
There are numerous ways to track your expenses, and how you choose to do it is completely dependent on your own personal preference. The most important thing is that you DO track them. Let’s go over a few ways you can track them:
The most popular software for tracking your income and expenses is Quickbooks. It is easy to use and plans start at just $5/month. With Quickbooks you can track your income, expenses, send out invoices and run basic reports. And with the Quickbooks app, it makes it even easier than ever.
Another very simple app to use is Expensify. Like Quickbooks, it only costs $5/month (which, by the way, is tax deductible). However, if you’re only uploading five expenses a month, then it’s free. It is also incredibly easy. All you do is take a picture of your receipt and it scans the receipt for you to organize the data. Also like Quickbooks, you can track your driving.
If you don’t want to buy software or use an app you can always record your expenses through an excel sheet. Below is a basic spreadsheet covering all twelve months. All you need to do is plug in the expenses for the month and the spreadsheet will calculate the daily and monthly totals.
Download- Yearly Expense Tracker
The bottom line is that it doesn’t matter how you record your expenses as long as you do. There is no right or wrong way. Just do what is best for you.
What Should You Prepare to Pay At The End of The Year?
One of the biggest problems for new business owners is that they are unsure how to prepare for the end of the year and by the time January rolls around they end up owing money that they didn’t save for.
Below is a chart from The Tax Foundation and shows what percent of your income you will owe based on your income. Keep in mind that there are many things that affect your bracket and how much you owe, so make sure to speak to your tax consultant if you are unsure.
Because you don’t really know for sure how much you will owe at the end of the year, it is wise to set aside a minimum of 25% of all your earnings into a savings account. If you end up not owing all the money that you’ve set aside you should keep it in your savings account for next year’s taxes. You can’t be over prepared when it comes to taxes.
Now, if you are making a large sum of money you may want to consider filing your taxes quarterly. This lessens the burden of what you owe rather than paying it all at one time at the end of the year. Doing it this way, however, is based on projections. You must regularly evaluate your business and how much you think you will owe at the end of the year so it is as accurate as possible. If you happened to pay too much money on the quarterly deposit, you would be refunded the overage when you do your annual taxes.
In conclusion, the most important thing you need to remember when it comes to owning your own business and doing your taxes is document, document, document!
Save your receipts, record your expenses, set aside some of your earnings for when you file your taxes and you should be fine.
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