RECORD-KEEPING AND BUSINESS PLANNING: A Road Map to Financial Success

Why should I file taxes?  There may be legal penalties if you don’t file taxes  It helps you track your income and expenses  You may get a refund  You will pay into your Social Security account  It may help your immigration status  It may help you buy a home  It may help you get a loan  It may help you sell your business

Why should I keep records?  You want to know how much your income is  You want to know how much your business expenses are  You want to know whether you are making a profit  It’s hard to reconstruct records a year later – you may miss some expenses

Why should I keep records?  It’s in your interest  You may get a larger refund on your tax return  You’ll pay more into your Social Security account  It may help with immigration status  It may help you get a business loan  It may help you sell your business  It may help you buy a home  You’ll sleep better knowing you have a good understanding of where your money is coming in and going out

Rules Of Good Record-keeping  Keep Up-to-Date Records  Track Business Income  Save & Organize Receipts  Review Records Weekly  Track Your Time  Reconstruct Immediately  Save Your Tax Records at Least Three Years

Sole Proprietor  Simplest and most common type of entity  Formed when an individual goes into business  Business and individual are one and the same  Business income is taxed on individual’s tax return

“Other” Taxes  Real property taxes – only if your business owns land or building  Personal property taxes – tangible personal property used to produce income. Reported and paid to county appraisal district.  State sales tax – collected on taxable goods and services and paid to State

Federal Taxes  You may owe both income tax and self- employment tax  Self-employment tax = FICA: Medicare and Social Security taxes. You pay both employer’s and employee’s share of these taxes. 15.3% for 2010; 13.3% for 2011  Estimated taxes are due on 15 th of January, April, June, and September. Form 1040-ES

Income Tax  Net income = gross income – business expenses  Gross income is every dollar your business earns  5 categories of business expenses 1.Ordinary business expenses 2.Depreciation 3.Start-up costs 4.Taxes 5.Shared expenses

Ordinary Business Expenses  Must be ordinary, necessary and reasonable for your trade or profession  Not inventory and not capital expenses  Exs. AdvertisingVehicle expenses Office expenseSupplies ToolsRepair & maintenance InsuranceContract labor

Depreciation  Deduction for capital expense – item that lasts longer than 1 year and costs more than $250  Spreads the deduction over several years – IRS determines how many  Section 179 exception  Requires more record-keeping

Start-up Costs  Expenses before your business opens  Deduct up to $5K in first year your business is open  Deduct remainder over next 15 years  Exs: LicensesEquipment AttorneyMarket research

Tax Expenses  You can deduct local taxes paid  If you have employees, you can deduct employment taxes  If sales tax collected is included in your income, you can deduct it when you pay it to the State  You can deduct one-half of your self- employment FICA taxes

Shared Expenses  Things you use both for your business and personal, such as a vehicle or cell phone  Some are shared generally, some because business is home-based  May deduct only business-use percentage  Unless home-based day care, home office must meet “exclusive and regular” test

Business Use of Vehicle  Two methods: 1.Actual expense. Keep mileage log and all receipts. 2.Standard mileage expense. Keep mileage log. Commuting miles not deductible standard mileage deduction 50 cents/every business mile.

Record-Keeping Tips  Remember, receipts are best!  Bank records, statement printouts, cancelled checks, credit card statements  Keep all records for business related expenses:  Business cards, ads in paper  License, class fees  Business insurance  Supplies, postage

Community Resources  BIG Austin  PeopleFund  ACCION Texas  SBDC  City of Austin Small Business Center  SBA  LAMP of TRLA

QUESTIONS?