This is a guest post by Lisa Robbin Young. Lisa Robbin Young is a certified direct sales marketing coach, teaching direct sellers to grow their business like a real business instead of an expensive hobby. Sign up for her free weekly ezine at http://www.homepartysolution.com/
5 Tips to Save on Your Taxes
As a business owner, at least here in the United States, Ben Franklin reminds us that there is at least one certainty in life: taxes. As a direct seller, you may have opted to build a small “side gig” to earn a little extra operating funds for trips, to give your family a little “more” or just to fund your shoe shopping habit.
Ultimately, though, if you’re producing revenue, you’ve got a business, and Uncle Sam wants his due. Even if you’re not profiting from your direct sales business, there may be some taxable situations that will effect you.
Mind you, I’m not a tax professional, but my friend, Scott Lovingood is, and he shared some great tips on his call for the Small Biz Super Summit this Spring. While the deadline for filing your taxes for 2010 may have passed, now is a great time to consider ways to get your finances in tip top shape this year.
1. Keep good records. Even if you put all your receipts in a shoe box, at the end of the year, you’re going to need to refer to them to prepare your taxes. The better records you keep, the easier it is to complete your taxes and defend yourself should an audit occur. One particular area that Direct Sales Pros tend to overlook is mileage. Keep a mileage log so that you can track all the miles you drive to and from your shows. It adds up over the course of a year, but if you don’t keep track, you can’t claim the deduction! At 50 cents a mile, every two miles you drive is a dollar back in your pocket come tax time!
2. Be aware of special deductions. Certain entities (like an LLC, for example) can alter your taxable benefits. Home based businesses have special deductions. Knowing this can save you thousands on your taxes.
3. Tax rules change all the time. One of the first tasks to outsource may very well be your bookkeeping. Tax pros spend all day every day staying on top of the tax code changes. They can take that responsibility off your plate so you can focus on making money.
4. Run your business as if the IRS were going to audit you at any time. Chances for an audit are small, if you fall within the “norms” the IRS uses to evaluate businesses. However, a business can be randomly selected for an audit at any time. If you’re running a real business, keeping business and personal expenses separate is just one way to help the IRS see your business as a going concern. Setting up a business account, having a business phone (that’s only used for business) are not only potential deductions, they help the IRS to see that you’re serious about growing a real business, not just having an expensive hobby. Hobby income must be reported, but hobby expenses are NOT deductible.
5. Close your books at least quarterly, if not monthly. By balancing your books each month, you have a better look at cash flow projections, income and expenses BEFORE the end of the year. If you have a major influx of income, you might even be required to pay quarterly taxes. If you are not balancing your books each month, you should at least balance them every quarter (most businesses do). You may avoid some of the tax penalties that can occur if you don’t pay those taxes on time.
Running a business from home means a lot of potential tax savings – trips to fun locations for your national conference could become deductible on your taxes at year end – but only if you’re running a business and keeping good records (other rules may also apply). It is up to you as the business owner to keep track of everything. Start now (if you haven’t already) to see success the next time your taxes are due. When in doubt, consult a tax professional to help you get the most out of the tax benefits a home business provides.
© 2010 Lisa Robbin Young.