September 2015 - Amy Northard, CPA - The Accountant for Creatives

How to account for charitable donations

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charitable donations from businessYou just donated a portrait session worth $700 to the Red Cross. The donated session included $150 worth of prints that you generously paid for yourself.

When it comes to donations that involve service costs, things can get a little confusing. Your instinct tells you that you should be able to deduct the full $700 since that’s how much you would have been paid by any other client. Unfortunately, that’s not the case.

Any donations of your time, whether it’s to a 501(c)3 charitable organization or not, is not deductible as a business expense or personal tax deduction. It’s a huge bummer, but we all know there are people out there who would take advantage of the system if they were allowed to deduct their time by overestimating or overcharging what their time was worth. To check whether or not a company falls into the category of 501(c)3, check out this helpful page from the IRS.

There’s good news though! You can deduct any out-of-pocket expenses related to the session.  Let’s say you loaded up your car and drove 10 miles to the session site.  Your assistant also joined you and you paid them $50 to help out for the afternoon.  As mentioned before, you also paid $150 for the prints after the session. All of these expenses are deductible.

Any miles driven for charitable purposes can be deducted at $0.14 per mile (2014 rate) on your personal itemized deductions form (Schedule A). This is a significant drop from the business mileage rate, but if a lot of driving is involved, this can add up, so be sure to track it.

When you paid your assistant $50, even though it was for a service, you can deduct that amount as a charitable donation. You’ve had an out-of-pocket expense paid to another party, so it qualifies. Similarly, when you paid for the prints yourself, it was another out-of-pocket expense that can be deducted.

Now you ask yourself, where do I deduct these expenses?  The answer is probably not what you’d guess. For sole proprietors and single-member LLCs, the deduction isn’t lumped together with your other business expenses. It goes on your personal Itemized Deduction page of your tax return. To see if you use this form, check your previous tax return for Schedule A. If it’s not in there, that means you get a standardized amount for your personal deduction and your donation won’t affect your tax return.

Last, but not least, remember to always save any documentation related to your donation. In addition to receipts, try to request a donation receipt that shows the total amount of goods donated. In the case of an audit, you’ll need to be able to easily access these documents.

5 Things to Know About Estimated Taxes

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estimated taxes for small business owners“Ah, yes… working for myself!  No one constantly telling me what to do. No more accounting department making out my checks. Wait… That means that I have to pay myself and pay my own taxes?”  Take a deep breath, my friends.  We can all get through this.  I am well aware of how hard it was for me to transition from working for a public accounting firm to working for myself.  It doesn’t have to be such a shock if you know these five things:

Who needs to pay estimated taxes?
For those that are just starting out, you will need to try an estimation formula to figure out how much you might possibly owe.  Here is one for your:  Subtract your expenses from your income and multiply what’s left by 20% to get your federal tax and 10% to get your state tax.

If you estimate or know that you are planning on owing more than $1,000 to the IRS, you will want to make quarterly tax payments. Each state varies on their requirement for when you need to start paying in quarterly, so just look up your state’s department of revenue website and see what they require.

How do you know what to pay?
The amount you owe will depend on several things like tax deductions, tax credits, marriage status, number of dependents and several other variables. If you want a precise calculation, check in with your accountant. You can use the estimation method from above as well.  Remember, this won’t be exact because you won’t know for sure how much you are going to make until the end of the year!

How do you make payments?
This is the easy part (It might be painful to write the check, but it will not be difficult!). Take another deep breath and go to the IRS website and print form 1040-ES vouchers. You’ll write in your name, address, social security number and amount you’re paying. If you’d rather pay online, go to, create an account, and make your payment.  Check with your state to see if you can pay online, otherwise they should have vouchers, too.

What are the due dates?
Ok, so we have our estimated amount and we have figured out how to make the payments.  Now it’s all about using our trusty calendars and setting them to remind us about a week ahead of the due date. Heads up:  Be sure to check your state’s website for their due dates!
-Quarter 1 payment – April 15, 2014
-Quarter 2 payment – June 16, 2014
-Quarter 3 payment – September 15, 2014
-Quarter 4 payment – January 15, 2014

What should you do if you aren’t ready to make estimated taxes?
Save, save, save!

If possible, stock away 30% of your income after expenses. Move it into a savings account to keep it out of your spendable money. This is actually a good idea if you’re making estimated payments, too.

Now, I know there are times when you may need that money for personal reasons and if that’s the case, don’t beat yourself up about it.  Just try to replenish the amount used right away so you have money available for tax payments.  Trust me, you will feel so much better when you can simply write out that check instead of trying to figure out where to get it from!

Need help?
Email me and we can set up a consultation to discuss what I need from you so I can calculate the estimated tax payment for you.

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