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Secrets Accountants Know That You Should Too

Working with an accountant is a great way to help proactively and positively plan for your financial future as well as budget on a yearly basis. Too often, individuals see accountants as only necessary for the wealthy or only professionals that you need to see once a year when tax season rolls around. 

By learning some of the hidden value that accountants have you can easily tap into their services on a year round basis to make the most informed financial decisions with virtually all aspects of your financial planning. 

Important things to know about accounting services include:

• Ask ahead – if you have a change in income, either up or down, talking to an accountant before making any decisions about investing or liquidating assets is critical for your immediate and future financial health. 
• Extensions are there for a reason – it is far better to talk to your accountant about an extension on your taxes or on payment of your taxes rather than fail to do so and have to deal directly with the IRS. Extensions are not problematic when they are filed in advance.
• Keep good records – it is important for yourself and for your accountant that you keep accurate information about all your possible deductions as well as your income. The more accurate your records are the more accurate your return will be and the lower the risk of an audit or a problem during an audit. 
• When you don’t understand say something – often accountants have the habit, as do all professionals, of talking in professional jargon. If an accountant is using terms or talking about something you don’t understand ask for more information to ensure you are clear on the concept and the decision you make. 
• Don’t wait to the last minute – tax season can be a very hectic and busy time for your accountant. Instead of waiting until the last minute schedule an appointment in advance and then just ask to wait to e-file. 

Remember that you can always schedule an annual financial wellness check with your accountant that is separate from tax preparation. This allows you to focus just on finances for one meeting rather than trying to do both taxes and finances at a very busy time of year.

Starting 2018 With A Financial Plan

The vast majority of people only see their accountant once a year, and that is typically between New Years and April when they are turning in their tax documentation for filing. 

While preparing and filing your taxes is an important part of what your accountant does, if this is the only time you see your accountant, you are not taking advantage of the education, information, and potential money-saving options your accountant can provide. 

As this is often a slower time of year for everyone, why not plan to meet with your accountant to review your financial plan for 2018 and the future? With this meeting you will be able to:

• Take a close look at your monthly budgeting practices and plan. Bring your current budget or at least a list of all your expenses and payments as well as your income. You don't need to create a full budget with the accountant, but he or she can be instrumental in getting you started in developing a spending plan. 
• Review your investments and make changes based on any life changes. This is particularly true if you have married, divorced, had a child, started caring for an elderly payment, changed jobs, lost a job, or any other type of major life event. 
• Review risk factors for investment based on life events and where you are in relationship to your long-term investment plan. Typically most people move from high-risk to low-risk investments as they get closer to retirement to protect their investments. 
• Learn about tax credits and deductions you can take advantage of in the upcoming tax year. This can include maximizing your retirement investments, taking advantages of tax credits with regard to specific types of purchases or home improvements, or other types of tax programs. 
• Set long-term financial goals that will allow you to retire, invest, fund college for the children, or even pay off your home early. 

The more you plan and work with your accountant the more benefits you will find to create the type of wealth you need. This is true if you are just getting started in life or if you are close to retirement: It is never too late to get started.

Money Saving Tips

There are a lot of simple ways anyone can incorporate into their daily activities and money management strategies that can add dollars a day to your bank account. While dollars may not seem like much, over the years they can add up, and with a wise investment in a top-performing mutual fund, money market, account or even in CDs, you will add to your retirement. 

Here are a handful of simple money saving tips you can do starting immediately:

• Pay your savings account first – Set up an automatic withdrawal to coincide with your automatic pay deposits. Move a dollar amount each paycheck into a savings account before you even have a chance to start spending. 
• Pay cash or with debit when possible – Whenever possible, pay with cash or with debit rather than credit. Credit interest is substantial for most individuals and families, and simply eliminating that will leave a lot more money for saving. 
• Use layaway rather than credit – If you are buying a big item or for holiday gifts or other purchases, use free store layaway programs rather than using your credit card. This is another way to save money on interest and to have your purchase paid for quickly. 
• Cut down on eating out – Eating out is a great way to treat yourself and the family, but it is a costly habit. Consider limiting this to once a week or perhaps once a month, and see the difference in your saving account. 
• Don't visit the coffee shop daily – Like eating out, buying a five-dollar coffee a day adds up. In a typical year, there are about 251 working days, which means simply cutting out the coffee would save you $1255 per year. 
• Shop sales for necessities – Buying something because it is a good price is only a money saving tip if you actually need the product. Often people buy sale items that are a "deal," but they don't typically use the product, which means it isn't a deal, it is an added expense. 
• Use reward programs – Online retailers and even local businesses are more willing to offer significant rewards programs to customers. Collecting points or rewards for items you need can help to save money. 

Remember, it also is essential to have a realistic operating budget. An accountant can help you to set up a workable program that helps you to save money while also being able to do the things you enjoy.

Teaching Kids About Money

Kids are naturally very interested in money and financial transactions as they apply to getting things they want. This is a terrific teachable moment, and activities and games to do with money are interesting for younger kids with even with just basic math skills.

To get kids interested in money and aware of the importance of budgeting and planning, parents can:

• Play board games such as Life, Monopoly and even The Farming Game that are easy for older children or even younger kids with help. For older kids and teens, Daytrader, a board game about the stock market, is a great option.
• Have an allowance that the child or children are responsible for choosing to use or spend. If you aren’t comfortable with paying a child to do activities around the home, make the allowance based on extra activities and not on what you consider the basics.
• Start a bank account. Take your child to the bank and let him or her open an account in their own name. Most banks have an incentive program for kids, and it’s a great way to learn about earning interest and saving.
• Model budgeting. Instead of just going to the store and paying with credit or debit card, bring cash and talk to children about how you make choices to stay within the budget. Having the money in hand is more concrete for children.
• Set goals as a family. This could be for a family vacation or something special for the entire household, such as new computers or televisions. When kids see Mom and Dad saving, they are more likely to see the benefit in this as they get older.

It is important to keep everything age appropriate for the child. The more comfort children have with budgeting and planning when it comes to finances the easier it will be for them when they get older.

Tips for Using the IRS Form 2106

If you have any expenses for businesses not covered by your employer, you may be able to file the IRS Form 2106 that allows you to make these deductions on your taxes. It is important to remember that this form is only used if you are an employee, not if you are a business owner or are self-employed. The important point to remember is that you must receive wages and a W-2 from the employer to use this form.

It is designed to allow employees to itemize business-related expenses that are not otherwise reimbursed by the employer. It is essential to avoid duplicating any items on the form if they are reimbursed by your employer.

Additionally, to use the form, you will need to ensure that the total amount of the deductions exceeds two percent of your total gross adjusted income. You may still be able to claim these deductions if the total amount is below two percent of AGI (adjusted gross income), but you will not be required to add the additional form.

Some of the expenses that can be claimed using the IRS Form 2106 include:

• Client Entertainment – If you take clients out for business-related meals, business trips, or events, you may be able to claim this expense on the IRS Form 2106. There is a limit of 50 percent of the total that can be claimed, and it has to be directly related to business, and not a personal meeting, which determines if it is allowable or not.
• Car expenses – If you use a personal car for business, you can either claim mileage or actual expenses. You can also claim parking fees, tolls, or other associated costs, but not vehicle repairs.
• Other travel – In most cases, employers will reimburse employees for larger travel items such as flights, train tickets, or taxis as well as hotel costs to a reasonable accommodation rate. It is important to understand that luxury hotel stays will usually not be eligible for a claim. Other expenses related to travel such as dry cleaning and even gratuities can be claimed using the form.

It is important to talk to your accountant about your options for using IRS Form 2106. In many situations, there may be other methods to claim the expenses that are more appropriate given the specifics of your return.

Why Money and New Year's Resolutions Don't Always Mix

Most New Year’s Resolutions fail by the time February and March approach, if not sooner. If you were to ask all of your friends about their New Year's Resolutions, you would probably find that three seem to occur more often than anything else. You may have already guessed what they are, but in case you are wondering, they are most likely centered around losing weight, getting fit, and saving money.

Just like the weight loss and the fitness, people start out in January with the real desire to change their spending habits and to try to put away a set amount of money each month. However, as we also know, for many people, January, February and even March can be months spent trying to pay down holiday purchases on credit cards.

The reasons that New Year's Resolutions often fail when it comes to savings can be broken down for several simple reasons. By recognizing where you are struggling, you can plan to compensate for this and find yourself with money in the bank.

• Bill backlog – With all the credit card bills from the holidays, savings can be "temporarily" put on hold. Unfortunately, this often sets a pattern of simply putting savings off to next month or buying again once credit card balances drop.
• No budget plan – One of the most difficult things about savings is if you aren't conscious of where you are spending your money. By having a budget and tracking your spending, you will be more effective in sticking to it.
• Using debit – People spend more when they use debit cards than if they pay cash. If you aren't comfortable carrying cash, limit the funds in the account linked to your debit card to your monthly or weekly allotment to prevent overspending.
• Save first – Before buying that extra venti latte in the morning, put your savings for the day, week or month, in your bank account. Avoid linking this account to your debit or credit account.
• Be reasonable – If you can only save a hundred dollars a month, don't set yourself up for failure by trying to save five hundred. Be reasonable with savings and, with success, increase your goals.

Finally, it is important to have accountability. Keep a record of what you are depositing into the savings account and continue to stick to your savings plan. Avoid temptations to dip into the account except in the case of some type of true emergency situation.

Accounting Apps for Simple Money Management

There is a wealth of different money management and basic bookkeeping or accounting apps available online. Some are designed for use for personal finances while some offer more of a business model.

Different credit card companies also have handy apps that allow you to instantly categorize purchases, keep records of receipts by snapping a picture, and even keep track of where you are spending money.

Regardless of the specific type of app you choose, there are some important considerations to keep in mind when using apps on your computers, smartphones, tablets, or other types of mobile devices.

• Linking to bank accounts – Many of the most popular apps will allow you to link the app directly to your bank accounts or credit cards. If this is the case, make sure that the app can be fully locked to avoid anyone from accessing this information if your phone is lost or stolen.
• Security issues – Smartphone hacking is very real, and it is a lot easier for hackers to get into apps on smartphones and tablets than through your computer. There are security programs for phones that are important to install and use if you are entering financial information through these devices.
• Customization – Some of the apps offer very little in the way of customizing or grouping your spending activities and habits. Look for the apps that allow you to create your own categories and group items in ways that make sense based on your spending patterns.
• Ease of use – Some of the older apps available are not intuitive or user-friendly. If you have an older budget or money management app, consider looking at some of the newer designs.
• Link to your big money management software – There are apps that will sync or link to Quickbooks and other types of accounting software you may use for your personal financial records or for your business. Check apps to make sure they sync to limit your data entry time and to help prevent errors with transferring data manually.

Tax Breaks for New and Returning College Students

While going back to school is an investment in your future or the future of your children, it isn't always an easy option when it comes to your finances. The good news is that there are some tax breaks that students attending college or university can claim.

These tax breaks will help reduce a bit of the bite of trying to get an education and also limit their need to pay additional taxes. Parents will be able to claim the tax credits for each of their children that are enrolled and attending. These credits and deductions include:

• American Opportunity Credit – This is a tax credit that is available for undergraduates for up to four years of college. Each year, students can claim this credit of up to $2,500. To make this even better, up to $1,000 of the credit is refundable, allowing some students to potentially have a refund even if they do not currently owe anything in taxes. To receive the maximum amount, you have to make under $80,000 for single filers or $160,000 if filing jointly.
• Limited Lifetime Credit – This can be claimed for an unlimited number of years and can apply to all types of degree programs, including graduate and undergraduate. It can also be applied to vocational or professional courses that qualify. This is not refundable, but up to $2,000 can be used to offset any taxes you may owe for that year.
• Tuition and Fees – These can be claimed as a deduction only if the student doesn't meet the criteria for the two credits listed above. This deduction can be up to $4,000 as an adjustment to income. For those that are filing as singles, the $80,000 income limit applies as does the $160,000 if married filing jointly. This deduction is not available if you are married filing separately, but parents can use the deduction if they pay the tuition and fees.
• Loan Interest Deduction – This is for student loans only and is applied as an adjustment to income of up to $2,500.

It is important to talk to your accountant to find out which option is best for your tax situation.

Forming a Partnership with your Accountant

Forming a working relationship with your accountant, either as a business owner or as an individual who wants to take control of your financial future, is perhaps one of the most important partnerships you can build.

Unfortunately, a lot of people fail to do this and only spend a few minutes talking with their accountant at tax season. If this is the only time you talk to your accountant, here are just a few of the many important aspects of your finances you may be missing out on:

• Planning for your retirement with the most comprehensive approach to short and long investment strategies with risk levels you are comfortable with.
• Determining options for creating tax savings for years to come. This could include strategic use of allowable gifts, donations to charities or even the option to develop different types of trusts and funds.
• Providing a complete financial overview of your personal finances or helping to develop a financial analysis of your comprehensive business plan.
• Helping you with important information on what to consider, what to track and record, and how to make the most out of tax credits and deductions you may be eligible for throughout the year.
• Helping you to develop an effective and accurate budget to allow you to save, pay for a home, buy vehicles or even to plan for kids to go to college.
• Assist you in making any large investments, sales of financial decisions to ensure all aspects of the transaction are in your best interests. This is true for both a business acquisition or sale or for major financial issues in your personal life as well.

In addition, an accountant is a great person to consult when you are thinking about starting a business, growing an existing business or perhaps in buying a new home or making a large purchase. Having a professional to go to for specific information, and a big picture look at all options, is a great asset for anyone to consider.

Starting 2018 With A Financial Plan

The vast majority of people only see their accountant once a year, and that is typically between New Years and April when they are turning in their tax documentation for filing.

While preparing and filing your taxes is an important part of what your accountant does, if this is the only time you see your accountant, you are not taking advantage of the education, information, and potential money-saving options your accountant can provide.

As this is often a slower time of year for everyone, why not plan to meet with your accountant to review your financial plan for 2018 and the future? With this meeting you will be able to:

• Take a close look at your monthly budgeting practices and plan. Bring your current budget or at least a list of all your expenses and payments as well as your income. You don't need to create a full budget with the accountant, but he or she can be instrumental in getting you started in developing a spending plan.
• Review your investments and make changes based on any life changes. This is particularly true if you have married, divorced, had a child, started caring for an elderly payment, changed jobs, lost a job, or any other type of major life event.
• Review risk factors for investment based on life events and where you are in relationship to your long-term investment plan. Typically most people move from high-risk to low-risk investments as they get closer to retirement to protect their investments.
• Learn about tax credits and deductions you can take advantage of in the upcoming tax year. This can include maximizing your retirement investments, taking advantages of tax credits with regard to specific types of purchases or home improvements, or other types of tax programs.
• Set long-term financial goals that will allow you to retire, invest, fund college for the children, or even pay off your home early.

The more you plan and work with your accountant the more benefits you will find to create the type of wealth you need. This is true if you are just getting started in life or if you are close to retirement: It is never too late to get started.

5 Reasons to Talk to an Accountant Before Starting Your Small Business

As a small business owner and entrepreneur, having the correct information to set up your business and to capitalize on accounting tips and strategies is often an overlooked part of the process.

People may naturally be more excited about actually starting to build a business and start earning a profit, but making the wrong financial choices in the first few days, weeks and months of your business can have a long-term impact on your income.

To get help with starting your business off on the right foot, talk to an accountant before making any financial or business structuring decision. Some very important reasons to do this include:

• Avoid Mingling Funds – Mixing your business and personal accounts, business and personal credit cards or debit cards, or otherwise having accounts that are used for multiple purposes can become a serious tax liability and issue. Always set up separate business accounts and avoid mixing and mingling.
• Personal Guarantees – Often a business owner may use a personal guarantee on a business loan. This is a potentially risky consideration as you may be using your home, personal vehicle, or other types of assets as collateral for a business that may or may not be successful. There may be other options in funding to consider to avoid putting your personal assets on the line.
• No Account Receivables System – No matter what a great job your business is doing if you don't have an accounts receivable system in place that is easy to use and efficient, you are going to have challenges in invoicing, collecting, and record keeping. This can end up in challenges with delayed invoicing, missed invoices, customer dissatisfaction, and more time spent in trying to collect overdue accounts.
• Use Technology – There are simple programs offered through several apps and accounting programs that allow you to capture copies of receipts at the time they are issued. When these systems allow you to correlate this with your expense account program, you have a very effective way of continually staying on top of spending as well as preparing for tax time.
• Not Meeting Regularly – If you are a small business, it is a good idea to meet with your accountant at least once in between tax seasons. This will help you to plan effectively for the next few months or years, ensuring you stay within your business finance plan.

Find an accountant you trust, who has a schedule that works for your business, and who is willing to work with a startup company to make the most of their financial opportunities.

Easy Ways to Cut Down on Christmas Spending

The holiday season is the time when most families spend the most money. The other time of the year that is a big expense is summer vacation, but most families have more trouble budgeting for Christmas and New Year’s than in the summer.

To help you save money over last year without cutting into your enjoyment of the season, here are some easy ways to start saving money and to avoid those last minute "splurge" issues that can add hundreds of dollars to holiday spending.

• Shop online – If you are shopping early for Christmas, you can find terrific online deals, starting in mid-November. Shopping online also allows you to have the gift wrapped and delivered right to the recipient, saving you on those costs as well. For impulse buyers, staying out of retail outlets is a cost-saving factor as well.
• Use cashback cards – Saving up to five percent per purchase makes sense, so using these credit or debit cards within your budgeted amount is always a good idea. Remember to only use credit cards if you have the cash on hand to pay the bill in total to avoid interest.
• Host one major event – Instead of a number of smaller dinners, parties, and gatherings, have one major event that allows you to set a budget and stick to it. You can even make it a potluck or a themed meal that will help to spread out the cost while allowing everyone to contribute.
• Use coupons – Even if you don't use coupons throughout the year, this is a great time to get started. Grocery stores and other types of retail outlets will have coupons, online specials, or specials through their apps that can really help to save money. If you don't want to keep using the apps, just delete them after the holidays.

Talking to family and friends about limits on gifts is also a great option. Most people are uncomfortable about bringing up the topic, but they appreciate the ability to have the discussion once it is raised.

Why Every Small Business Owner Needs an Accountant

As a small business owner or an entrepreneur, you may be used to doing everything on your own to save money. However, when it comes to financial issues, an accountant is an important professional to have on your team.

The simple fact is that a small business accountant can typically end up saving you money, which will cover the small fees your business will pay for their services. These professionals can assist in providing information on changes in the tax code, tax credits, and even tax deductions that can add up to thousands in taxable savings.

There are several ways that an accountant can help a small business at any stage:

• Assisting in protecting yourself and your business with the use of the correct business structure.
• Setting up your accounting practices within the business to comply with all the governmental requirements.
• Verifying you are using the right classifications of employees for all your staff as well as making sure your independent contractors are correctly classified for taxation purposes.
• Checking that you are using the right type of payroll and accounting software based on your business needs and suggesting modifications to make the process more accurate and efficient.
• Providing you with information on any tax credits or tax deductions for which you are eligible and completing any required documentation.
• Suggesting and advising you on ways to decrease the costs of doing business, boosting your overall bottom line.
• Developing short and long-term financial strategies for business growth and expansion.
• Completing your taxes correctly and completely to help to limit the chances of an audit and also working with the IRS is there is an audit or a need for additional clarification on financial issues.
• Consulting and working with you to understand your business cash flow and how and where expenses and costs are a concern.
• Advising on large purchases, such as commercial property, equipment or even when considering merging with, buying out another company, or selling your existing business.

For the small business owner, an accountant should be a year-round consultant. By meeting with your accountant regularly, you can maximize your profits and have a complete understanding of your business financial plan.

Is it Smart to Downsize for Retirement?

Retirement is upon you or coming up pretty fast and one of the things your accountant might have told you is that now is the time for you to downsize. While moving into a smaller house might seem to make sense now that the kids are all grown and gone, but like any financial decision you make, you should crunch the numbers first. Don’t just assume that downsizing is what you should do. 

When you are doing your calculations don’t forget to include the many fees you can incur when you buy and sell a house. Then there is the cost of moving, cost of changing utilities, address change costs, reprinting of checks, the cost of changing ID, and the list goes on. While some of these might seem like incidentals when you add them all up you might be surprised at what you discover. There’s also the costs of preparing a home for sale and then the remodeling you are likely to do to make your new home perfect for you. Even things like painting can translate into noticeable drops in your pocketbook. 

There are also other things to consider other than financing. Have you built relationships in your existing neighborhood? Are you close to amenities that you use? If you use bus services will the new location accommodate you? These things are especially worthy of consideration if you have lived in a neighborhood for a long time and you have ties to that neighborhood. 

If you are to consider strata type housing you need to consider the monthly costs of strata fees and how those will increase over time, which could land up having a negative effect on your pocketbook. 

As you can see there are many things that you need to consider when you are thinking about downsizing after retirement.

Is Tax Software The Same As An Accountant?

Although it isn’t close to tax season yet, it is really never too early to start thinking about your options. As people try to save money and do things on their own they may be tempted to try out the different tax preparation software on the market today and save some cash by not going to an accountant.

However, before you decide if going to the software is really your best option think about the following:

• Basic isn’t always best – the software offered for free or at a very low cost is basic tax preparation software. It is not the same software that is used by your accountant and there are very definite limits on the features that you have access through with the software.

• Questions – while most software has an FAQ section it is often very simplistic and really has to do with how to use the software, not specific tax questions. If you call the hotline offered with some tax software you are not likely to actually speak with a CPA but you will be speaking to a tax preparer. This may provide you with a less than complete answer to a more complex question.

• Past tax filing – when you use an accountant through the years he or she becomes very familiar with your regular deductions and your various 1099s and W-2s and may help you catch an error or omission that may end up causing a delay on your return or, worse case scenario, an audit notice.

• Offers ideas for tax savings – when you have an accountant prepare your taxes she or he will meet with you for a review before e-filing. This allows you a chance to discuss possible options for tax savings for the upcoming tax year.

In addition, working with an accountant is a must if you are self-employed or own a business of any size. These can become very complicated tax returns and making a mistake can end up costing you much more than the cost of an accountant.

Cheaper is Not Always Better

Let me share a story...

I work for a large insurance firm in the northwest, in an office with over 500 other employees.  Management recently decided to replace our existing phone system as the old system was no longer meeting our needs.  I and my co-workers were under the impression that they were going to update the system, as in "make an improvement", and that we would have late model phones with technological advancements galore.  Boy, were we in for a surprise. 

One day a few weeks ago, we all came in to find new phones on our desks.  These were not the state-of-the-art communication devices we had in mind.  Instead of the sleek, sophisticated, caller IDing, multi-line handling, LCD displaying wonders of the modern age we all dreamed of, there was a simple phone with a keypad on the receiver...not unlike what you might have had at home 15 years ago.  In addition to the new phone, there was a sheet which explained in graphically painful detail exactly which series of buttons one would have to push in order to make this thing function properly.  We had to now enter a digit to put someone on hold, enter a three digit code to transfer someone (one digit, dial tone, two digits) and enter a ridiculously long series of numbers to access our voicemail. 

Needless to say, we were in shock.  I knew it wouldn't take long before the roars of complaining would drown out the usual office din.  Sure enough, by lunchtime, our office manager came in to tell everyone that we were simply going to "try it out for a while" and that the company had saved thousands by choosing this option.  I and the other employees were fairly certain that we had already lost thousands in reduced productivity that morning alone.  Oh, well...it's their company; we just bring in the money for them.

For the next few days, we tried to get used to saying "hold, please, while I transfer you", removing the receiver from our faces and trying not to curse as we made a lame-duck attempt at pressing keys, listening and pressing more keys.  It was a nightmare.  We were getting pretty fed up with it but just assumed that this was what we would have to deal with.  Then, out of the blue, we came in one day to find real phones with real features at our desks.  No more looking at the receiver while we frantically tried to key in numbers fast enough not to drop the call.  No more ten digit voicemail "pins".  No more of having no idea who was calling or where the call came from.  Ahhhh, relief at last. 

Later the same day, we heard a rumor circulating around the office that the VP of operations had returned from a two week trip to New York.  His words, upon seeing one of the phones management had originally purchased on his desk were, "get rid of them".  All it took were those four words from a higher-up to set things right. Unbelievable.

Tax Tip of the Week: If I barter my products or services do I have taxable income?

The fair market value of property or services received in barter is taxable. But, it may not result in an increase in taxable income based on how what you received is used.

As an example, we trade accounting and tax services with an office supply company. We must include in income the fair market value of the office supplies received. But, we also get to deduct these costs as office supplies expense since they are used in our business.

But, when we trade accounting and tax services for a family photo we still have taxable income but we cannot deduct personal expenses. This results in an increase in taxable income in the amount of fair market value of the family photo.

Like all tax law there is an exception to the general rule. An informal exchange of similar services on a non-business basis is generally non-taxable. An example of this is carpooling.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Control Costs With Zero-Based Budgeting

Budgeting is a tool for dealing with the future.  It helps you turn expectations into reality.  In its simplest form, a budget is a detailed plan for future receipts and expenses.  As the budgeted period progresses, you should compare actual results with your forecasted goals.

 The method of budgeting which I recommend is called zero-based budgeting.  This method makes the assumption that last year’s expenses were zero, and begins the budgeting process from that point.  For example, this budgeting formula assumes that your supplies expense account begins at zero.  You must first determine who consumed what supplies last year, who will be consuming them this year, and how much will be consumed.  In this manner, zero-based budgeting forces you to actively manage your consumption while reviewing your costs. 

The effect of zero-based budgeting is that you will no longer include prior year’s mistakes and overspending in the current year’s budget. 

Few small businesses use zero-based budgeting, despite its many advantages.  Not budgeting is truly the most expensive mistake the small business owner can make.  Sure, zero-based budgeting may take more of the owner’s time, but it can pay big dividends in increasing bottom-line profitability.

Failure to Properly Document Business Auto Use Will Cost You Big Time!

Taxpayers must be prepared to substantiate auto deductions with adequate records or sufficient evidence. Failure to do so will cost you thousands of dollars in increased taxes and/or fees to accountants or tax lawyers if you are audited.

Taxpayers should be able to substantiate:

1. The amount of each expenditure for the vehicle, including purchase price, vehicle improvements, lease payments, repair and maintenance, gas and other expenses.
2. The total mileage on each business vehicle and a breakdown of the business, personal and commuting miles.
3. The date of the business use and a brief description of the business purpose for each use and expense.

Records should be maintained in an account book, diary, log, trip sheet or similar record near the time of usage [Brown, TC Summary Opinion 2005-155(2005]. Without a written record of business or investment mileage, a tax auditor will not allow the deduction.

Without a mileage log, the taxpayer will have to convince an appeals officer or the tax court (at substantial increased costs in legal and accounting) through oral testimony and other circumstantial evidence. This can include statements from employers and customers, invoices that required the use of the taxpayer’s car for ordering and delivering and entries in calendar programs.

I prepare hundreds of business returns every year and have spoken to each one of them about these requirements. Still, I can count on one hand the business owners who actually keep a log.

Technology today can be very helpful. Both the I-Phone and the Android have an App that assists in tracking business mileage. Be sure to look for one that exports to a computer file such as Excel in order to keep a hard copy.

You can also use a digital recorder to record the necessary information. Be sure to export the file to your computer. You should also consider having this file transcribed so you can have a hard copy for your file.

Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.

Don’t Forget To Budget Me In!!

I have a hard time stressing the importance of budgeting money each month on marketing.  A lot of business owners see it as a wasted expense. It’s really not!

I like to use this analogy when it comes to spending money on marketing. It’s like buying a $20 gift certificate for $10 to your favorite restaurant. You spend money to make money. Just because you don’t get an instantaneous response doesn’t mean it won’t pay off.

The trick is to spend your marketing dollars in the right areas. You have to know your customer to have any type of success. If you need help budgeting or getting to know how your customer’s think, call my office at 915-857-8158, to schedule a meeting.