Hey Boss Mamas! In case the TV commercials haven’t tipped you off, it’s tax season. That special time of the year when we shift our focus from making the most money to keeping the most money. If you are new to owning your own business, or even if you’ve been doing it a while, here are some tips I picked up from my friendly neighborhood tax professional on how to make taxes less scary.
DISCLAIMER: THIS IS NOT LEGAL TAX ADVICE!
My tax advice has all the credibility of Dr. Oz’s latest diet plan. The IRS has the final say on what’s legal and what’s not when it comes to your taxes, so check everything I say here with your tax preparer to see if it fits your situation. Got it? Good. Onward then!
Make sure you’re running a business, not a hobby.
“The IRS wants to see that you are making a profit,” said my informant. (Let’s pretend they were calling me from a pay phone and using a voice disguiser.) “Maybe not the first year, but after a few years you should be making money. Otherwise you aren’t running a business, you’re running a write-off.” If you’re making more than you spend, that’s a good sign. Okay, moving on.
Pay business taxes quarterly.
There is a self-employment tax that you have to pay the IRS quarterly, otherwise you could get hit with a penalty when it comes time to file your annual taxes. Later this month, we’ll hear from one of our own MHM members about how you can also file quarterly taxes to qualify for paid maternity leave as a self-employed business owner.
Get an EIN number.
EIN numbers are easy to get, and there’s a good reason to use one. Without it, you end up using your social security number on all of your tax forms. Which poses a security problem if your taxes are public record. Which they are. Apply for one here.
TIP: use your EIN number on your business license as well, since that is also public record.
Mileage and Expenses.
Your two biggest deductions are expenses and mileage. But it’s easy to forget a quick trip here, a membership due there, and next thing you know you’re leaving money on the table. “Keep track of everything. The IRS wants to see that you are running your business like a business.”
There are plenty of apps for tracking mileage and expenses, the top two I found were Expensify and QuickBooks Self-Employed. They aren’t free, but if your tax pro has to sort through a whole year’s worth of receipts for you they may hit you with an additional accounting fee. Pay the few bucks. Deduct it.
Got any tips for tracking your expenses and mileage? Share them to the MHM Facebook page!
Download a Schedule C.
It’s hard to keep track of what’s deductible and what’s not, having a Schedule C around the office year-round will help you remember which receipts to save and which expenses to track. You can download it from the IRS website here.
TIP: If your personal cell is also your business cell, calculate how much of your cell phone use is business related and deduct that percentage of your cell phone bill in the “other” category.
Home office.
There are two ways to write off your home office – the simple way and the complicated way. The simple way is to measure the square footage of your home office and deduct $5 per square foot. My office space is a loft that I share with my library and my husband’s desk, so we measure the section that I use regularly and exclusively for business and include it in our taxes. “The two words to remember here are REGULARLY and EXCLUSIVELY,” the informant says. So, if your office happens to be at the dining room table? Sorry. According to the IRS, it doesn’t count.
The complicated way to write off your home office is to take the square footage, figure out what percent of your home your office takes up (say, 6% for example) then deduct 6% of your house payment, your electricity bill, your internet bill, your water and trash, etc. “It’s a lot of paperwork. Just use the simple method.”
Write on your receipts.
Write down why it’s a business expense, or what category it falls under (office supplies, advertising, meals and entertainment, etc.) This will make sorting your receipts a lot easier. Keeping them organized is another animal.
I used to keep an envelope in my office for business receipts, but found that they sometimes (meaning usually) got lost in my purse or thrown out before they made it to my desk. Luckily, I have a separate credit card for business expenses, so by saving my credit card statements I could track down receipts if I needed to. Now, a special slot in my wallet is reserved for physical business receipts (meals, parking, etc.), and a special folder in my email inbox for emailed receipts (domain names, membership dues, etc.)
Your tax preparer can use an expense report generated by your home accounting software, in fact they would probably prefer it, but make sure you have receipts to back up the expenses you claim on your taxes.
TIP: The IRS can audit you up to six years after you file, so keep your receipts and records for the past six years.
If you have employees, do not – I REPEAT, DO NOT – do your own taxes.
Tax law gets more complicated when you start employing people. A LOT more complicated. It’s the difference between making cupcakes for a school fund-raiser and competing on the reality TV show “Cupcake Wars.” Doing taxes for a business with employees requires more than a weekend and a stack of paperwork, it takes a professional level of experience. Unless your business is preparing taxes, hire a professional.
Are there any MHM tax pros out there? Tell us about yourself on the Facebook page on Self-promotion Sundays so we know who you are!
