Possible Tax Advantages
Congress GIVES us these deductions to ENCOURAGE small businesses! Please use all you are qualified to receive!
Marvin D. Krueger, CPA, CMA shared this info and listed over 50 ways you can document and deduct business expenses from your U.S. Income Taxes, and added 8 generally overlooked other areas.
NOTE: This is not intended to give tax advice. Please work with your accountant.
As the IRS requires written documentation to qualify for the deduction, NOW is the time to start keeping your receipts! Where applicable, I have added a note or two to clarify how most companies will help you document these expenses, or how to easily document them yourself.
Here is his list of potential deductions for your business:
- Your Account Membership/Start-Up Fee –Whatever this cost was – and your annual renewal. This can range from $5 to generally no more than $50. Documentation required you’re your credit card statement or cancelled check (or checking account statement).
- Your Product/Leadership Pack/Sampler Kit/Hostess Kit. In order to understand and market YOUR unique products, you need to use them yourself.Your Company probably has packs pre-designed to provide you with the most popular products for you to try that will actually save you money. Start off with these. You will probably end up designing your own customer packs that work with what you want to accomplish for your clients – but start with what the company already has in place.The company provides receipts for all purchases, keep for tax time.
I have found that the product I purchased or have seen others purchase in there starter kits has been used for demonstration purposes and as samples – it is important to keep track of this.
- Your Monthly/Quarterly Purchases. These purchases are “required” in order to qualify your business center or distributorship in all companies in get a check (no purchase, no check).This purchase generally qualifies as a deduction (check with your CPA).In a wellness company you may be personally using the products. As many of the benefits from using the products come in the long-term, we must become a “product of our products”; the daily/monthly usage does this.
Many CPAs confuse the company with a Distributorship where you have to buy, inventory, and resell product. In those businesses, your purchases are not deductible. A wellness business is a WHOLESALE business where 95% of the product goes directly to the end customer. You get to deduct the Product Cost, Tax and shipping.
A jewelry, cosmetics, or cookware business would be retail. So the costs are passed through to the consumer. You would get to deduct the costs of your hostess gifts (if they are the product). Be sure to include all costs – Tax and shipping
- Your Home Office. Create one area in your house to do your Business. It can be out of a closet, a desk in the corner of a room, a full room, or an office created out of some of your garage space. The only requirement is that it be used exclusively for business. If your desk is in the TV room, you can’t deduct the whole room; just the area that you actually work in.The percentage of the house used for business calculates the part of the following that you can deduct from your taxes: (Save your receipts for these deductions)
- Rent (If you own your own home with the bank, the interest, taxes, etc. are applied elsewhere.)
- Electrical Bill
- Sewer Bill
- Insurance (not deductible at all, unless you have a home business!)
- Cleaning service (as long as they clean where your office is too!)
- Garbage Service
- Water Bill
- House Repairs
- Landscaping (If people come to your house on business.)
- Training Expenses (Document with receipts)
- CD programs /MP3
- B.E.S.T. series /CDs
- Training Conference calls
- Advertising Expenses/Promotional
- Like T-shirts? If it has the logo, it is an advertising expense.
- Giving a gift? If product, treat as Advertising.
- Newspaper ads
- Social Media
- County Fair / expo booth fees
- Company Literature
- Color reproduction costs (photocopies, etc.)
- Website Expense
- Graphic Design
- Labor Expenses paid to your children for Business related work. (Up to $6,100 in 2013)
http://www.smbiz.com/sbfaq022.html .Keep track of what is done, and how much paid, pay by check, canceled check is proof. The first $6,100 earned income is not subject to taxes.Of course, your children must be old enough to understand the task they are doing – I put my kids to work at age 8 stuffing envelopes (for my mailings). Now they file, do computer work, and do a lot of my videos. They are tremendous!Here are some of the tasks that might be useful in your office:
- Emptying the Garbage
- Mowing Lawn, other Landscaping
- Cleaning your office.
- Stuffing Sample Bags
- Packing your car for parties or Trade Shows
- Taping your videos and uploading to You Tube
- Computer work (Most kids are better at computers than we are!)
- Envelope stuffing/postcard stamping, other mailing tasks.
- Other business related items.
- Business Travel
- Travel to pre-arranged presentations. Going to visit your sister? Put an ad in their local paper two-three weeks before, coordinate several appointments, and your trip is deductible (within some limits). Is your wife/husband going? Are they working with you in the business, and will they be at the appointments? Their trip is deductible too!
- Airfare, train fare and car mileage.
- All “fees” related to travel – parking, tolls, security, etc.
- Meals while on the trip (subject to limitations).
- Entertainment expenses (subject to some rules and limitations)
- Lodging Expenses
- Office Expenses
- Paper clips, printer paper and toner, light bulbs, pens, pencils, highlighters.
- White boards, easels, presentation flip charts
- Furnishings (Chairs, desks, lamps, carpet, etc.)
- Equipment (Computers, printers, fax machines, PDAs, phones, etc.)
- Phone bill (If you only have one phone, only the long distance calls related to business; the IRS believes that one line is a ‘necessity’ and will not allow that as a deduction.)
- Second line used for business (Document business usage by adding to your business card/stationery)
- Special services on your phone bill (Three-way calling, call waiting, voice mail)
- Cell Phone (Document business usage by adding to your business card/stationery)
- Internet account and e-mail. (Document business usage by adding to your business card/stationery). (Document fees by printing billing from Internet account)
- Data processing costs for business report. (The company documents for you on business report, and on year-end 1099 form)
- Postage for business mailings
- In-Touch Reports costs
- Mentoring Report costs
- Business Meals. When you do a presentation at a restaurant/ coffee shop, pick up your receipt! This is a deductible expense (50%). It’s a good practice to put the name of the person you were with.
- Convention/Corporate Event Expenses. Giving a party to celebrate? Make it a business event. Invite your business associates/prospects and deduct the entire cost! (Make sure you celebrate your business!) Document via receipts and invitation list, have attendees sign a “guest book” to document who attended.
- In-home expenses
- Product cases (for carrying display products in/out of house)
- Demonstration supplies
- Assistants (read: your children, if old enough)
- Food provided (100%)
- Snacks/tea/coffee/Attain shakes (100%)
- Mileage to/from presentations, training events, Product Launches, etc. (56.5¢ per mile this as of 2013) Document with mileage log. Do for three consecutive months, or three like periods, extrapolate totals to full year (multiply by four). IRS requires some sort of logical, written documentation of this. If your day planner does not have a good sheet for this, check out on the web for one, or make your own. It needs Date, purpose, start mileage, end mileage, total mileage on the trip, and total mileage for the month. You will also need the year’s start and ending mileage numbers off of your car’s odometer for the tax form.Now for some “General” tax issues that you should be looking at, if not using:
- 401K. Usually set up by an employer, often with matching funds. If you have the option, you should be contributing. Start low on the percentage scale and move up with each raise (add 1% to your contribution). Your contribution is not taxed until you take it out, and if your company is matching a percentage of your contribution, you are almost guaranteed to come out ahead!
- The American Opportunity Tax Credit. It is a tax credit of up to $2,500 of the cost of tuition, fees and course materials paid during the taxable year. Also, 40% of the credit (up to $1,000) is refundable. This means you can get it even if you owe no tax. This is good up to 2017 on post secondary education
- Lifetime Learning Credit. What is the tax benefit of the lifetime learning credit. For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. There is no limit on the number of years the lifetime learning credit can be claimed for each student. Cannot be used in conjunction with The American Opportunity Tax Credit.
- Car Lease. Look at the lease/purchase decision VERY carefully! Usually the lease option is best for those that do not drive a lot, because the lease penalties for going over the anticipated mileage are very severe. (We have a friend who parked his leased car for a year to get the mileage back into the lease zone, and he still had to pay the lease and insurance on the car!)
- Want to help your grandchildren who don’t live with you? Set up a 529 College Fund OR a Coverdale Education Savings Account for them. You can contribute up to $2,000 per year, and the money can be used for college or qualified Kindergarten – 12th grade expenses also (read that “Private School”).
- If you’re concerned about Capital Gains on the sale of your home. Don’t take the depreciation part of the Home Office Deduction. Up to $500,000 of the Capital Gains is fully tax sheltered, if you have lived in the house for at least 2 years.
- Staying at a Friend’s house while on business? Give them a gift in return, and deduct the amount as lodging for the trip. Cash or product are both OK (of course, I always give a gift of the Products, especially if they are not yet customers, it breeds interest! Limitation: Cannot exceed the cost of average hotel room in the area. (You can get the government’s idea of “average” for an area by searching for the US Government “per diem” rates on the Internet).
Taxes can be a VERY simple matter—as long as you document properly. They can also be complex—depending upon your own personal situation—therefore, no widespread communication like this would be complete without the “boiler plate” disclaimer:
All of the above information is advisory and educational. It MAY NOT apply to you and your circumstances in any given year. If you have any questions about your specific situation, consult a qualified Tax Professional.