Since we talked about tax deductions last week, we will finish off the month with a few more words about the way you can save money on your taxes. There are many things that people think they can deduct but that in fact not deductible. The one thing that comes to mind is the expense for clothes. I have talked to many women who think that the expense for business clothes is tax deductible.
Much as we can justify paying for business suits and using those suits to make a great impression, the expense is not a business tax deduction. Since the business outfits can be worn outside of business meetings, these expenses are not exclusively for business purposes, and therefore the price of the business clothes is not deductible. The only clothes that you can deduct are those that have a logo. If you wear apparel with your company logo you can take a deduction for the price. Besides, when you wear this outside of business meetings, you will be advertising your business all the time.
The opportunity to share your business with everyone you meet is also an advantage when it comes to tax deductions. You may not want to spend a lot or money on personalized apparel in the beginning, however it could be something to consider in the long run. This is one more reason to create a logo that you like and that represents you and your brand well. Of course, nothing is set in stone - there is always an opportunity to do better once we know better. And the same applies to your branding.
One tax deduction that a lot of people miss out on is the expense they incur with their car. Most women in business that I have talked to take the deduction, they are aware of the fact that the auto expenses are tax deductible, however, they don't keep good records of the mileage driven for business and therefore the tax deduction is many times a guesstimate. The biggest issue is that without good records, the IRS can decide that the deduction is invalid in case of an audit. The second issue is the possibility of the deduction taken being smaller than the correct amount; in this case the women business owner end up paying more taxes than required.
There are a lot of apps now available for mileage tracking. The most common ones are TripLog and MileIQ. Some of the business programs used for accounting and reports can also be used for mileage tracking - the one that I know of is TaxBot. If there are others, I would love my readers to post their favorites in the comments. I would like to know what others use, and what programs can do, so that I can check them out, and also improve my tracking for business expenses and deductions.
Monday, August 27, 2018
Monday, August 20, 2018
Keep More Money Month - Chapter 3
As we are getting closer to the end of the summer, we are talking about keeping your money. And since this time of the year is the favorite time for travel for many families, I wanted to share some ideas about tax deductions you can take with your vacation travel.
Before I get into details, I will caution you to keep great records of what you actually do on the trips, so you can prove that the trip had business purpose. The good news is that your vacation can be (partially) tax deductible. It takes some math to figure out what percentage of the expanse you can take out, so please make sure you figure it out correctly.
There are 2 scenarios that I want to discuss today. The first one is when you plan to travel for business and decide to take your family with you. The second scenario is when you plan a family vacation and would like to be able to deduct some of it on the taxes.
If you plan to travel for a conference, convention or any other type of business reason, and you figure the location is just awesome enough to want to show your family, you probably decide to stay a few extra days at the destination. Let's say you travel for a 2 day conference that happens on Wednesday and Thursday, and decide to stay over the weekend and return on Sunday. You take your family with you and enjoy Friday and Saturday at that location. Now a 2-day trip became a 4-day trip, and since half of the time there was spent at the conference, you can also deduct half of the plane ticket price.
Another deduction can be part of the cost of the hotel room - make sure you only deduct the percentage of the room rate for the days of the conference. Let's say you use 50% of the first 2 nights, since you share the cost with your husband (technically). The time you spend with the family - the 2 extra vacation days - is not tax-deductible, so please stay away from any trouble with the IRS. Make sure you keep track of your food expenses for any meals you eat at the conference with fellow attendees - half of that will be a tax deduction.
In the second scenario, if you plan to travel with your family already, and would like to save some of the money off your taxable income, you need to make sure you have some business activities while you are away. These can be business meetings, prospecting - if you can provide services or products to people at that location.
Whether you plan to travel for business and then decide to extend the travel time in order to spend time with the family, or you plan a family vacation and then schedule some business meetings in that area, you can deduct part of your travel expenses. One word of caution: keep track of the time you spend for business and deduct the percentage that pertains to that time.
Before I get into details, I will caution you to keep great records of what you actually do on the trips, so you can prove that the trip had business purpose. The good news is that your vacation can be (partially) tax deductible. It takes some math to figure out what percentage of the expanse you can take out, so please make sure you figure it out correctly.
There are 2 scenarios that I want to discuss today. The first one is when you plan to travel for business and decide to take your family with you. The second scenario is when you plan a family vacation and would like to be able to deduct some of it on the taxes.
If you plan to travel for a conference, convention or any other type of business reason, and you figure the location is just awesome enough to want to show your family, you probably decide to stay a few extra days at the destination. Let's say you travel for a 2 day conference that happens on Wednesday and Thursday, and decide to stay over the weekend and return on Sunday. You take your family with you and enjoy Friday and Saturday at that location. Now a 2-day trip became a 4-day trip, and since half of the time there was spent at the conference, you can also deduct half of the plane ticket price.
Another deduction can be part of the cost of the hotel room - make sure you only deduct the percentage of the room rate for the days of the conference. Let's say you use 50% of the first 2 nights, since you share the cost with your husband (technically). The time you spend with the family - the 2 extra vacation days - is not tax-deductible, so please stay away from any trouble with the IRS. Make sure you keep track of your food expenses for any meals you eat at the conference with fellow attendees - half of that will be a tax deduction.
In the second scenario, if you plan to travel with your family already, and would like to save some of the money off your taxable income, you need to make sure you have some business activities while you are away. These can be business meetings, prospecting - if you can provide services or products to people at that location.
Whether you plan to travel for business and then decide to extend the travel time in order to spend time with the family, or you plan a family vacation and then schedule some business meetings in that area, you can deduct part of your travel expenses. One word of caution: keep track of the time you spend for business and deduct the percentage that pertains to that time.
Monday, August 13, 2018
Keep More Money Month - Chapter 2
This week we will talk about another way to keep more of the money you make. As a business owner, you may need to buy items on credit, whether you have a business credit line or you have to use personal or business credit cards. This last scenario is often the case for solopreneurs and home-based businesses.
One place to spend your money is the interest on loans you take out. Therefore, it stands to reason that paying less in interest means keeping more of the money you have. Many business owners finance big purchases in their business by using personal credit cards. For those who have good credit, the interest might not be high, which can help with not letting a lot of money go towards interest. most cases though, it proves more cost efficient to take out a loan - preferably for the business - instead of charging the purchase on a credit card.
There are experts who can help you with building business credit, so you don't keep using personal cards. Even before this can happen, it is a good strategy to build a relationship with your banker, so you can take advantage of good advice when you need to purchase a big item on credit. Even though I recommend to my clients to use a couple of banks for their accounts, I believe in using the same branch (or a couple of branches) for most of your banking needs. This will help you build a relationship not only with the teller that attends you most of the times but also with the branch manager. As they get to know you better, make sure to talk to them about your business and its needs.
If you do find yourself charging big purchases on your credit cards, make sure you keep track of your balances and make payments beyond the minimum, so you can pay it off as fast as possible. One way to spend less on interest is by asking the credit card company to lower your interest rate. Some of the companies are willing to negotiate when you make all payments on time and you maintain a good credit history.
It is not a great idea to risk your home by refinancing credit card balances into your mortgage, or as an equity loan. Though this may mean lower interest, it also puts a lot of pressure on you not to lose your house. Your health does not deserve this extra challenge! The tax savings you would get on the mortgage interest may be substantial though, so it is worth checking with your accountant or tax specialist.
One place to spend your money is the interest on loans you take out. Therefore, it stands to reason that paying less in interest means keeping more of the money you have. Many business owners finance big purchases in their business by using personal credit cards. For those who have good credit, the interest might not be high, which can help with not letting a lot of money go towards interest. most cases though, it proves more cost efficient to take out a loan - preferably for the business - instead of charging the purchase on a credit card.
There are experts who can help you with building business credit, so you don't keep using personal cards. Even before this can happen, it is a good strategy to build a relationship with your banker, so you can take advantage of good advice when you need to purchase a big item on credit. Even though I recommend to my clients to use a couple of banks for their accounts, I believe in using the same branch (or a couple of branches) for most of your banking needs. This will help you build a relationship not only with the teller that attends you most of the times but also with the branch manager. As they get to know you better, make sure to talk to them about your business and its needs.
If you do find yourself charging big purchases on your credit cards, make sure you keep track of your balances and make payments beyond the minimum, so you can pay it off as fast as possible. One way to spend less on interest is by asking the credit card company to lower your interest rate. Some of the companies are willing to negotiate when you make all payments on time and you maintain a good credit history.
It is not a great idea to risk your home by refinancing credit card balances into your mortgage, or as an equity loan. Though this may mean lower interest, it also puts a lot of pressure on you not to lose your house. Your health does not deserve this extra challenge! The tax savings you would get on the mortgage interest may be substantial though, so it is worth checking with your accountant or tax specialist.
Monday, August 6, 2018
Keep More Money Month - Chapter 1
We will talk in the month of August about different tools, tips and tactics that can help business owners and the self-employed keep more of the money they make. If you own a business and are committed to building it, then you may be putting all your money back into it. This is considered a good practice not only because it helps grow the business with the capital you reinvest, but also because it turns into a tax deduction.
I thought about sharing some of my thoughts on tax deductions today. I have been working with many people who are looking to reduce the amount of money they pay on taxes by taking deductions for the things they do. This can be a good thing, of course, because one gets to use the money for the things they need and also pay less in taxes at the same time. The only issue I see with this strategy is when one makes purchases or spends money on unneeded stuff for the sake of the tax deductions.
I have always believed that the most important money one should keep in their money instead of spending is the money paid on interest to other people or companies. I have come across people who don't want to pay their mortgage down faster and save the interest because they want to use the mortgage interest as a tax deduction. Well, here is the challenge with that strategy: one pays $100 in mortgage interest to save $25 in taxes (for someone in the 25% tax bracket). In this case they would be better off keeping the $75 in their pocket instead of giving it to the mortgage company.
As a strategy to save money on taxes, many people contribute to pre-tax retirement plans, such as 401K or IRA. This is a great strategy to keep more money for the present time. For most people, it can be a good strategy long-term, given that most Americans have less money in retirement than they do while they work. However, if you plan right and build your wealth to have a worry-free retirement, you may be better off paying taxes on your current income and then receiving your retirement money tax free. This would mean a Roth account - IRA or 401K. The wisdom of this strategy comes from a popular saying that states that it is better to be tax on the seed than on the crop.
These tips and strategies don't work for every single person or every single situation. Everyone is different and their strategies need to be adapted to their situation. For this very reason, it is important to sit down with financial professionals - financial planner, CPA, tax attorney, estate attorney.
I thought about sharing some of my thoughts on tax deductions today. I have been working with many people who are looking to reduce the amount of money they pay on taxes by taking deductions for the things they do. This can be a good thing, of course, because one gets to use the money for the things they need and also pay less in taxes at the same time. The only issue I see with this strategy is when one makes purchases or spends money on unneeded stuff for the sake of the tax deductions.
I have always believed that the most important money one should keep in their money instead of spending is the money paid on interest to other people or companies. I have come across people who don't want to pay their mortgage down faster and save the interest because they want to use the mortgage interest as a tax deduction. Well, here is the challenge with that strategy: one pays $100 in mortgage interest to save $25 in taxes (for someone in the 25% tax bracket). In this case they would be better off keeping the $75 in their pocket instead of giving it to the mortgage company.
As a strategy to save money on taxes, many people contribute to pre-tax retirement plans, such as 401K or IRA. This is a great strategy to keep more money for the present time. For most people, it can be a good strategy long-term, given that most Americans have less money in retirement than they do while they work. However, if you plan right and build your wealth to have a worry-free retirement, you may be better off paying taxes on your current income and then receiving your retirement money tax free. This would mean a Roth account - IRA or 401K. The wisdom of this strategy comes from a popular saying that states that it is better to be tax on the seed than on the crop.
These tips and strategies don't work for every single person or every single situation. Everyone is different and their strategies need to be adapted to their situation. For this very reason, it is important to sit down with financial professionals - financial planner, CPA, tax attorney, estate attorney.
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