Personal and Business Expenses

When you own a business, expenses can quickly add up. Businesses should try to keep personal and business expenses separate. Sometimes, that proves difficult for small businesses. So, if you do keep expenses together, keep all business receipts. Then, make a notation or category for business expenses so you can easily find those at tax time. 

“Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated for a profit.” IRS Pub 535

Expenses should be ordinary and necessary. Ordinary means common and acceptable in your industry. The expense should also be appropriate and helpful. It is easy to find examples of expenses that the taxpayer disagreed with the IRS as to ordinary and necessary. 

For example, the IRS closely watches cell phone usage. You can only claim the business portion of expenses. So, you must calculate the portion of business usage because you likely use it for both.

“Generally, you cannot deduct personal, living, or family expenses.” IRS Pub 535

You should be careful to save receipts from large retailers, i.e. Costco, Amazon. In an audit the IRS will generally want proof that these expenses are for business purposes. 

Some additional expenses that can be tricky include:

  • Business Use of Home. If you use part of your home for business, you may be able to deduct expenses. The area of your home must be used regularly and exclusively for business. Calculate the percentage of your home used for business and then you can deduct this portion of mortgage interest, insurance, utilities, repairs, and depreciation. 
  • Business use of your car. If you use your car for both personal and business purposes, you must divide expenses based on actual mileage. Look at my post on this subject for more information.
  • Interest. If you borrow money and use part of the money for personal and part for business, figure out a percentage for each and only deduct the business portion of the interest you paid.

Always be careful when claiming expenses that they are for business purposes. In the weeks to come, I will add more information to help you complete most of your own accounting.

Tips, Uncategorized

Accounting for Bloggers

I love reading blogs. I love the variety of topics. I love the inspiration. I love thinking I can recreate the ideas. I love seeing glimpses of other people’s lives. also love my profession of accounting, taxes and bookkeeping. But, I discovered that most accounting blogs are written for other accountants. I want to help people become an accountant for their own business. You are invested in making your own business successful.

My blog includes ideas, tutorials and excel templates to help you with your own accounting. You don’t need to buy  Quick Books or other expensive accounting software.

Yes, you will probably still want to have someone complete your taxes at the end of the year but you will save money by having all of your expenses organized. If you hand your accountant a box of receipts, they will charge you for organizing those and calculating which expenses you can use. If you have the tools and know what expenses to give your accountant, you will save money.

You can also make sure to deduct all of your expenses. For instance, if you buy items at a department store, your accountant will likely assume that to be clothing. Usually, clothing is not deductible. But, if you were purchasing items to use in your business, you can tell your accountant what the expense is for.

I think everyone can become an accountant, especially with their own business. Having an organized system to track your income and expenses, will save you time and money at tax time. Good luck with your business.