Bookkeeping is a piece of the puzzle that prepares business owners for tax preparation. Without it, there is no opportunity to make strategic decisions and planning before the year is over. Bookkeeping keeps the owner informed on a monthly basis of profit, estimated taxes, expense anomalies, and year end spending goals. We have dedicated client managers that handle bookkeeping so you are never behind – even during tax season! Bookkeeping includes the reconciliation of all bank accounts and credit cards as well as making sure things like mileage, home office, owner loans, sales tax, and many other tasks are correctly included in your company financials. Our goal is for you and your company to be as audit-proof as possible.
Accept you are a business owner! It’s all about mindset!
You are accountable for everything. You can delegate responsibility, but NOT accountability. You will wear multiple hats! It’s OK to ask for help! Find a team of trusted accounting partners! Know what you don’t know! Seek out expert advisors in areas you need help with or have questions about. Ask questions early to avoid pitfalls and future problems and get help to avoid penalties and interest from the IRS.
Know the Tax Equation
Income – Expenses = Profit
This is the bottom line! This is the number used to calculate your taxes. Other deductions or tax credits may further reduce this number; however, this is also the number used to calculate self-employment taxes OR estimated tax payments.
Profit vs. Cash Flow (Why is my profit not showing up in my bank account?)
Liabilities do not reduce profit (like sales tax, loan payments, payroll liabilities). Bookkeeping is important so you understand the balance sheet and profit & loss statement and how both affect cash flow.
Home Office Deduction
To take a home office deduction, you must have a separate and distinct area of your home used solely for business. To track this, there are two options. You can track actual expenses and we then take a percentage at the end of the year OR we can do the “simplified method”.
- Actual Receipts Method:
Square footage of the home and office area PLUS if you own your home, we need (total paid for the year): utilities, mortgage interest, property taxes, home owners’ insurance, cleaning, home security, water bill, internet only, landscaping and any improvements made to the home that also affect the office area OR if you rent your home, we need the total rent paid for the year and total fees for utilities, home security, cleaning, renters’ insurance, internet only and any improvements to the rental that affect the office area.
- Simplified Method:
Or, if you choose to not itemize your expenses on the home office deduction and use the Simplified Method, we simply take $5 per square foot deduction for home office, up to 300 square feet, (a total of $1500 deduction), no questions asked, no expenses needed! Then, there is no depreciation recapture when you sell the property if you own the home. This option is not available for partnerships or corporations.
To deduct business mileage, you need to keep a mileage log (and may need to recreate one from the beginning of the year if you are not already keeping one). In most cases, the mileage deduction is better than claiming actual gas receipts. Some clients use Mile IQ (app), but keep in mind it needs to be properly set up (with addresses). You cannot just enter “St. Cloud to Orlando – Business” for the entire log. Also, even if you do claim actual receipts, you still need a mileage log. You will need to track:
Year, make and model of the vehicle; Starting odometer on January 1st (of the tax year); Ending odometer on December 31st (of the same tax year); and Total business miles.
Year End Spending and Other Business Deductions
Some other items that we will need to discuss include regular business expenses that can be written off that include your cell phone, gift cards $25 and under, client gifts, business meals and more! When reasonable & ordinary and documented properly, these write-offs can reduce your taxable profit! Depending on how your business is taxed, health insurance could be a possible write-off as well. Retirement investments can also become a business expense depending on your situation. Please make sure as we continue through the onboarding process that you let us know your questions and it would be our pleasure to educate and assist you in reducing your tax liability and connecting you with our partner team of professionals. Other topics we should discuss include making quarterly estimated tax payments; filing 1099s for contractors you pay (due January 31st); following W2 payroll compliance; filing a Tangible Personal Property tax return (due April 1st) for any fixed assets your business owns and renewing your annual report filing for all LLCs and Corporations (due by May 1st)! We will be sending reminders out throughout the year so not to worry!