Tax Tips Archives - Amy Northard, CPA - The Accountant for Creatives

Tax tips for last-minute tax filers

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Tax tips for last minute tax filers - Amy Northard, CPAIt’s human nature to put off things that don’t fire you up. I usually put off cleaning my house until we have guests over and if you’re reading this, you probably put off doing your taxes until the last minute. No judgement here. If I wasn’t an accountant, I’d probably be in the same boat.

I’m sharing three tips to keep you sane while getting your taxes filed.

Don’t start using a new bookkeeping software.

At this point in tax season, you will only cause yourself piles of stress by trying to start using a new bookkeeping software to record the entire past year’s worth of transactions. Instead, open up a blank Excel spreadsheet and just start dumping all your income and expenses into it.

The spreadsheet doesn’t have to be super fancy. It just needs to have all your income totalled up, and all of the expenses totalled up by category. If you’re not sure what category something goes in, make one up! For example, if you’ve paid to attend a conference, put that in the “Education” category.

Creating categories for your expenses might feel weird, but remember: the IRS cares less about what something is called, and more about people over reporting their expenses and not having proof of them (receipts).

Put all your tax docs in one folder.

Don’t let your tax documents float around your home. As soon as a tax document arrives in the mail, stick it in a designated folder. When you go to do your taxes, you’ll have everything in one place.

In addition to the forms you get in the mail, there may also be forms you have to download. This is common for Health Savings Accounts, student loan interest, brokerage statements and even W-2s from your employer. Either print these out and stick them in your folder, or create a folder on your computer and save the PDF forms there.

Consider filing an extension.

If it’s just not possible to get your taxes accurately filed by April 15, you always have the option to file for an extension. Keep in mind, this extension isn’t an extension of time to pay your taxes, just an extension of time to file the forms.  Try to get as much info as possible into the tax software to get an estimate of what you’ll owe, so you can pay that amount with your extension.

To file the extension, you’ll use Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. This form is available on IRS.gov or through most online tax filing softwares. Most states accept the federal extension, but some require a state-specific extension form so check with your state’s department of revenue on this.

You’ll have the option to pay in an any amount you want with the extension. To avoid being charged underpayment penalties and interest, it’s better to send in a little extra, if you can. Any overpayments will be paid back to you in the form of a tax refund.

Business Travel Deductions & Tips

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Travel deductions for conferences - AmyNorthardCPA.comAs I get ready to head out to The Savvy Experience in Arizona, I thought it would be fun to chat about how to expense all the things that go along with attending a conference and business travel.

Travel Deductions

Pre-conference Shopping!

As I was in the Anthropologie dressing room looking at the price tags of all the pretty things I found, I was REALLY wishing the IRS allowed us to deduct clothing we plan to wear at conferences (that we attend or speak at). Unfortunately, they’re pretty straightforward in the IRS Publication 529 (search “clothing”) that any business clothing purchased that can also be worn outside of work functions are not deductible.

Flight and Luggage Fees

This is pretty straightforward – any expenses related to your flight, including luggage fees, can be expensed through your business. Driving? Check out this post on car and truck expenses.

Taxis, Ubers, Lyfts

Whichever one you choose, this travel cost between the airport and your hotel is deductible. If you’re sharing a ride with another attendee, Uber and Lyft allow you to split the fare so you each get a receipt for the expense!

Meals During Travel

If you’re traveling away from your “tax home” (city or area where your main place of business is located), you can deduct all meals eaten while away, not just meals where you talk business. If you don’t want to keep track of all the receipts while you’re gone, you have the option of using a per diem rate (a flat rate based on the city you’re in). You can use this link to find the per diem rate for the location of your travels. The Scottsdale, AZ meals and incidentals rate is $59/day.

Tips

Any tips you pay related to deductible meals, lodging, or travel can also be expensed. If they are paid in cash, keep a log that shows the date, amount of tip, and reason (ex: server tip at dinner).

Dry Cleaning and Laundry

If you’re gone for an extended period of time and need laundry done while traveling, these expenses can be deducted.

Record-keeping While Traveling

Keep receipts of all your expenses OR take pictures of the receipts and upload them to a Dropbox folder or your bookkeeping software. In the Quickbooks app, you can upload receipt images directly to expenses on your phone! Xero and Wave also have this capability. I like to keep paper copies as well, just in case, so I usually bring along a zippered pouch or wallet (like this one) to stash receipts in.

How to organize business receipts and paperwork

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How to organize business receipts and paperwork for your small business. - Amy Northard, CPA amynorthardcpa.comAs a business owner, receipts, copies of invoices, bills, and other paperwork can pile up quickly making our desks cluttered and offices messy. When you have a plan in place to organize all those papers, you can clear out quite a bit of office clutter and know where to find documents in case you get a notice from the IRS or your state.

I’m going to share what works for me and some tools you can check out to keep the clutter to a minimum. If you have a different method or app that you love, please share in the comments!

First, let’s get the timeline for saving business records out of the way. The IRS suggests saving your receipts and records for at least four years, but keep in mind that the IRS can still come knocking on your door if you failed to report more than 25% of your business’s gross income (income before expenses are taken out) six years after you file a return.

Now, let’s talk about why you need to hang on to all this documentation. The biggest reason is in case you get a notice from the IRS or your state requesting additional documentation or notifying you that they want to audit your records. By having organized records that you can easily locate, you’ll cut down on quite a bit of the stress that those letters usually cause.

Receipts
On to the fun part, the organizing! As a service-based business, I don’t have a whole lot of expenses that produce paper receipts. Since that’s the case, I just throw my receipts into an envelope labeled with the month. Now, if I ever need to find a receipt for an expense, I can go directly to the month of the expense (found by looking in my bookkeeping software) and pull the receipt.

For emailed receipts, I’ve created a Gmail folder where I save my invoices to. If I need to find a receipt, I can search the folder to locate the specific receipt. It’s always a good idea to back up these emailed receipts in case an email gets hacked or shut down for any reason.

My challenge to you: once a month, print your digital receipts to PDF and save them in another location.

Bank Statements
When I do my bookkeeping for the month, I print off all my bank, credit card, PayPal and Stripe statements and when I’m done, I stick those in the monthly envelope as well. You can also save PDF copies in the cloud (ex: Dropbox).

Invoices
Copies of invoices are not commonly thought of as important tax documents to save, but keep in mind that as states search for ways to make more money, they’ll bump up efforts to collect sales tax that’s owed. To do this, they’ll look through a business’s invoices to make sure sales tax was properly invoiced.

Since all my invoices are sent through Quickbooks, I can access them virtually that way. It’s also a good idea to export invoices to PDF format and save in another location. This will save you a lot of stress if your bookkeeping software were to crash or your online account were to close.

Apps & Tools
There are so many different ways to keep your receipts and paperwork organized for your small business, but here are some top tools that I love recommending to my clients:

Shoeboxed – Starting at $9.95/month, Shoeboxed lets you use your phone to scan in receipts or mail in paper copies using their “magic envelopes.”  They use their scanning technology to grab information from your receipts and catalogue them in their software. Shoeboxed works with most popular bookkeeping software. Bonus: they have a mileage tracker, too!

WaveApps – If you use Wave for your bookkeeping, be sure to check out their receipt-scanning technology. You can upload receipts from your computer directly to Wave, scan them with your phone, and forward emailed receipts directly to your Wave account. For $0, it’s hard to beat.

CamScanner – While you can take pictures of receipts, sometimes it’s nice to have them in PDF format and that’s where CamScanner comes in. You can get by using their free scanner app and only need to upgrade if you need more cloud memory space for your documents.

Evernote – If you’re an avid Evernote user, saving copies of your receipts in the software along with notes about the expenses is a great way to keep things digital and organized.

I hope this has given you some ideas for organizing your receipts and business documents. If you have a process that works for you, please share in the comments!

Car and Truck Expenses: Demystified

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Auto expense deduction for small businesses [via AmyNorthardCPA.com]Unless you only work out of your home office, there could be a whole lot of driving going on for your business. All this driving can really rack up the expenses and if you track them thoroughly, you’re eligible to take a very helpful deduction.

Now that I have your attention, read on… This deduction will help reduce your taxable income, which will reduce the tax owed at the end of the year. The downside: it takes a little work to track.

Here’s the skinny on the two options available when it comes to deducting car and truck expenses:

Option One
The first option is pretty obvious.  You start by tracking the actual expenses you incur to operate your vehicle for business purposes – hey, running out to get more latte’s won’t cut it!  You need to keep tracking only things like gasoline, oil changes, lease payments, insurance, registration fees, tolls, parking fees, tires, repairs, depreciation, and garage rent.  You can handle that, right?

This option does not include down payments or monthly payments for a car loan but you can deduct the business use of your lovely vehicle’s expenses listed above. So, grab a pencil and paper or your favorite spreadsheet program and let’s get a handle on how much is for business use.  It’s all in the tracking of your business versus personal trips and that can be figured out by tracking your mileage.  Stick with me and I’ll explain the details of how to do that in a minute.

Option Two
If you aren’t into all that tracking, don’t fret it.  Here is that second option I told you about:  Just take a deduction based on your mileage. One caveat… If you want to use the mileage deduction, you must use it in the first year of business.  After that first year, you can then switch between the two methods.

In 2014, the deduction is $0.56 per business mile.  The frosting on this cupcake is that you can also add on parking fees and tolls.  For example, you’re meeting a client at a local coffee shop downtown. You can count the miles to and from the coffee shop as well as money paid to the parking meter.

What should you keep track of on your mileage log? You’ll want the trip’s date, destination, business purpose, and mileage to and from your starting location. You can keep a log book in your purse or car, but I’ve found that using an app on your phone can be just as effective because it uses your phone’s GPS. You just tell it when to start recording mileage and when to stop.  My favorite app is TripLog and it works on Android and IOS.

All of this may seem like a lot of work, but it’s worth it in the end!

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 EFTPS.gov, 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.

At what point do I have to report my business income?

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when do I report my business income?I often hear from small business owners that they haven’t reached the point of needing to report their business income on their taxes because their expenses are still larger than their income.

Well, I want to clear something up for everyone. Since self-employment taxes start when you’ve earned $400 or more of self-employment income (doesn’t include W-2 wages), the IRS wants you to report that income as soon as the gross income is at or above $400.

Gross income is the money you receive before any fees or expenses are deducted. So, if I received $300 from a client, that is my gross income. Once I deduct expenses, what’s leftover becomes my net income. Let’s say I have $100 in expenses. My net income would be $200.

Don’t be fooled into thinking that just because your expenses created a loss for the year that you don’t have to report your income!

p.s. Have you heard about my new course for creative entrepreneurs? It’s packed with information that you’ll have lifetime access to! Check it out here.

4 Easy Steps to Call Your State Tax Department About Sales Tax

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how to call your state department of revenue about sales taxIf you ever search sales tax rules for your state and profession, you’ll probably see a whole lot of “check with your state” and “ask an accountant.” This is due to the fact that every state has different sales tax rules and in most states, they aren’t very clear. After spending almost an hour researching some sales tax questions for a photographer and not finding a clear answer, I decided to just call.

Here are 4 easy steps to call your state tax department.

#1 Go to the bathroom first.
I’m not even kidding. I made this mistake just today and had to do a little dance while I waited to speak to someone at the Michigan Department of Treasury for over 20 minutes.

#2 Have your list of questions written out.
I’m the first to admit that sometimes I can get flustered and forget to ask certain things in the heat of the moment. They call come rushing back to me after I hang up, and then I have to sit through another round of PureMichigan ads as I wait to hear from someone.

#3 If possible, ask them to email you the “proof.”
By having documentation, you are protecting yourself if you are ever audited and the findings go against what you were told. If they don’t want to email you, at a minimum ask for their name and record the date and time you spoke with them.

#4 Don’t rely on your memory.
I like to have a Google Doc open with my questions ready when I call. Then, as I get the answers to my questions, I type word for word (as best as I can) what the state employee is telling me.

Are business clothing purchases deductible?

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can I deduct clothing purchases as a business expense?A common question I heard during tax season was whether or not clothing and shoes purchased specifically for work purposes could be deducted as a business expense. It seems logical that you should be able to deduct an outfit you only wear for shooting weddings or speaking at events, but unfortunately that won’t be good enough for the IRS when it comes to deducting the expense.

If your clothing purchase satisfies these requirements found in the IRS Publication 17, then they can be deducted as a business expense. If not, consider them a personal purchase.

  • Clothing must be specifically required by your employer
  • It is not enough that you do not wear your clothes away from work
  • The clothing must not be suitable for taking the place of your regular clothing

Some common jobs that would have clothing that satisfies these requirements include delivery workers, firefighters, and health care workers.

Everything you need to know about 1099s

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how to fill out 1099s onlineWhat’s the deadline?
The 1099 deadline (specifically 1099-MISC) is January 31, 2017 to send 1099s to the recipients AND file them with the IRS. This is a change from previous years, so take note!

Who receives one?
If you paid $600 or more to an unincorporated person or vendor for services related to your business using cash, check, or bank transfer (ACH) you need to issue them a 1099-MISC.

What if I paid them with PayPal or credit card?
If you paid an unincorporated vendor using PayPal, credit card, or other third party merchant, the payment service is responsible for reporting this information (usually by issuing a 1099-K). You don’t have to do a thing!

How do I file these?
1. Make a list of those who meet the qualifications for receiving a 1099-MISC.
2. Send them a W-9 to collect their Taxpayer ID Number, address, and business name.
3. Create an account with 1099Online.com.
4. Create a payer which will be your business information.
5. Create the payees. This is everyone who needs to receive a 1099 (Use W-9 info).
6. Enter the amount of “nonemployee compensation” each person received.
7. Choose the option to have the 1099 mailed to the recipient. Huge time saver.
8. File the 1099s after carefully reviewing them.

What happens if I’m supposed to receive a 1099, but don’t?
You should report all income received, whether you receive a 1099 or not. No need to file one for yourself or delay your tax filing if someone doesn’t send you a 1099 or sends you a late one 🙂

*UPDATED for 2017

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