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Another small business expenses question

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Another small business expenses question

 
Old 02-26-2018, 09:20 AM
  #1  
J S Machine
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Default Another small business expenses question

I have been trying to keep up with my spending and hold on to all receipts for write off purposes. The question is do I really have to keep up with receipts if I have a credit card transaction record or bank statements from my business account?

Keeping up with all the receipts is not really an issue, but I'd rather not have to do it if it isn't necessary since I have the transaction records.

Another question that is probably obvious, but I am genuinely curious. Don't you actually have to make a certain amount of income that is higher than the expenses to be able to write off? In other words, for example let's say at the end of the year I made $100. I had $50 in expenses. That way there is actually a $50 profit.

Example #2, Let's say at the end of the year I have $100 in expenses and I only made $50. Technically I have a loss of $50. Do write offs even matter at that point?
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Old 02-26-2018, 09:28 AM
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Consult with your local Trade School; maybe they conduct seminars about such things as taxes.

Many years ago, my wife and I attended a local, all day, seminar hosted by the local trade school. Answered the tax questions **** the other entries for schedule C.

Aldo they explained how local laws and ordnances impact a small business owner.

Also look for a peer group of business men and women who offer their own experiences as models for other small business owners, especially startups.
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Old 02-26-2018, 10:12 AM
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Originally Posted by 1Patriot View Post
Also look for a peer group of business men and women who offer their own experiences as models for other small business owners, especially startups.
That's kind of what he's doing here.

Jon, Keep all the paper and keep it organized. This is going to end up being one of your ways to double check that you've actually accounted for everything is when you match up paper receipts to the electronic records.

Some form of accounting software would be a real help. Keeping up with that is also a help. If your records are all a bunch of crap thrown in a shoebox, they're going to cost you a fortune to take to someone to do tax preparation.

As to your question about $100/$50 $50/$100, it doesn't make any difference, you still have to keep track of that stuff for 7 years. Without written proof of the expenses, you can be held liable for that money as income.
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Old 02-26-2018, 10:25 AM
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Dude, get TurboTax Business and use quick books or something.
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Old 02-26-2018, 10:45 AM
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Originally Posted by Humanoid 2.0 View Post
Dude, get TurboTax Business and use quick books or something.
I've used turbotax deluxe for about ten years. I'm just afraid I am going to miss something because I worked and have a regular W2 until October of last year, and then I have self employment expenses and income until the end of the year. Also have a 401k rollover into an IRA which I drew from a few times. The bank withheld taxes, but I'm not sure if the amounts are correct and all that jazz. I am going to have to have an accountant look at it to get it right, and then I would really like to start doing my own taxes again. I don't have any employees or anything -it is just me. It can't be that hard.
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Old 02-26-2018, 11:10 AM
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Originally Posted by J S Machine View Post
I've used turbotax deluxe for about ten years. I'm just afraid I am going to miss something because I worked and have a regular W2 until October of last year, and then I have self employment expenses and income until the end of the year. Also have a 401k rollover into an IRA which I drew from a few times. The bank withheld taxes, but I'm not sure if the amounts are correct and all that jazz. I am going to have to have an accountant look at it to get it right, and then I would really like to start doing my own taxes again. I don't have any employees or anything -it is just me. It can't be that hard.
The amount withed is only an estimate, you also have early withdraw penalties. Your final taxes and rate is determined by your final AGI. Then that will tell you what you owe, then you take what you paid in for the year and you have to pay more or get some money back.

The TurboTax Home & Business Tax Software will have the walk troughs and forms for your business and for taking money out of your IRA. Or you can get a CPA to do them, just have your receipts.


I hope you are not taking money from your IRA to go on a cruise.




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Old 02-26-2018, 11:32 AM
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Old 02-26-2018, 11:37 AM
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Originally Posted by J S Machine View Post
I have been trying to keep up with my spending and hold on to all receipts for write off purposes. The question is do I really have to keep up with receipts if I have a credit card transaction record or bank statements from my business account?

Keeping up with all the receipts is not really an issue, but I'd rather not have to do it if it isn't necessary since I have the transaction records.

Another question that is probably obvious, but I am genuinely curious. Don't you actually have to make a certain amount of income that is higher than the expenses to be able to write off? In other words, for example let's say at the end of the year I made $100. I had $50 in expenses. That way there is actually a $50 profit.

Example #2, Let's say at the end of the year I have $100 in expenses and I only made $50. Technically I have a loss of $50. Do write offs even matter at that point?
I guess CFOT is the best place to check if you really want the factual answers - - - or, you can try the DNC at 202-863-8000. If anyone knows how to screw the IRS they do . . .
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Old 02-26-2018, 11:53 AM
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Your tax liability is determined by taxable income, not AGI.
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Old 02-26-2018, 12:02 PM
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Originally Posted by C5 Freak View Post
Your tax liability is determined by taxable income, not AGI.
Ops, correct, you can have allowances for personal exemptions and itemized deductions after AGI. Anyway a CPA or TurboTax will calculate all of that.
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Old 02-26-2018, 12:49 PM
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Or find a local Enrolled Agent.
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Old 02-26-2018, 12:56 PM
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I have been self employed for nearly 4 years, and my accountant said that the more records I have, the easier it will be if I have an audit. He told me that if the auditor sees consistent record keeping, they won't look as hard for issues as they will if you have messed up records.

I keep track of everything on 3 spreadsheets, 1 income, 1 for mileage, and 1 for expenses.

I list all my income I these columns: Date, Inv, #, Client, Amount Bill, Amount Paid, and Amount owed to me. Totaling these columns tells me what I have billed, what I have collected, and what is owed to me.

On my mileage spreadsheet, I note the mileage when I left the house, mileage when I returned, and where I went that day. A formula on each row gives me the mileage I drove that day and I total that column for the year.

On the expense side I have a spreadsheet that shows Date, How I Paid (Credit Card, Cash, etc.), a category (Meals, materials, client gifts, etc.) what client I was working with that day, a description of the expense, and the amount. At the end of the year, I sort and subtotal by the category and I have my business expenses for the year. For receipts, I have an app on my iPhone, I scan the receipt, e-mail it to myself, and store it on my computer for backup.
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Old 02-26-2018, 01:08 PM
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I use two credit cards to cover any minor expenses up to about 15 grand. After that we issue purchase orders and set up charge accounts. My accountant and i get copies of the monthly statements which show purchase type, vendor and amount. I don't generally bother with minutia. I have been audited for seven years.

if you are doing a lot of cash expenses, i would try to get away from that where possible, its a pain.
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Old 02-26-2018, 01:13 PM
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I would call a CPA or Accountant!
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Old 02-26-2018, 01:19 PM
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Originally Posted by Humanoid 2.0 View Post
The amount withed is only an estimate, you also have early withdraw penalties. Your final taxes and rate is determined by your final AGI. Then that will tell you what you owe, then you take what you paid in for the year and you have to pay more or get some money back.
This is what I don't fully understand and I don't want to end up owing a bunch in interest and penalties because I made a mistake.

Originally Posted by Humanoid 2.0 View Post
The TurboTax Home & Business Tax Software will have the walk troughs and forms for your business and for taking money out of your IRA. Or you can get a CPA to do them, just have your receipts.

I will check it out. I was unaware that Turbotax could handle the IRA part. I have talked to a local accountant lady, although I think she may be more along the lines of just a "tax preparer" and not a full on accountant. I did talk to another CPA, but their costs are astronomical to do anything. Not saying I don't think they are worth their money. I just haven't made much money yet, and I am not in the league of paying a certified accountant.

Originally Posted by Tri-Tip View Post
I have been self employed for nearly 4 years, and my accountant said that the more records I have, the easier it will be if I have an audit. He told me that if the auditor sees consistent record keeping, they won't look as hard for issues as they will if you have messed up records.

I keep track of everything on 3 spreadsheets, 1 income, 1 for mileage, and 1 for expenses.

I list all my income I these columns: Date, Inv, #, Client, Amount Bill, Amount Paid, and Amount owed to me. Totaling these columns tells me what I have billed, what I have collected, and what is owed to me.

On my mileage spreadsheet, I note the mileage when I left the house, mileage when I returned, and where I went that day. A formula on each row gives me the mileage I drove that day and I total that column for the year.

On the expense side I have a spreadsheet that shows Date, How I Paid (Credit Card, Cash, etc.), a category (Meals, materials, client gifts, etc.) what client I was working with that day, a description of the expense, and the amount. At the end of the year, I sort and subtotal by the category and I have my business expenses for the year. For receipts, I have an app on my iPhone, I scan the receipt, e-mail it to myself, and store it on my computer for backup.
All good suggestions, especially the emailing the receipt scans. I will look into this.
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Old 02-26-2018, 01:20 PM
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Originally Posted by J S Machine View Post
I have been trying to keep up with my spending and hold on to all receipts for write off purposes. The question is do I really have to keep up with receipts if I have a credit card transaction record or bank statements from my business account?

Keeping up with all the receipts is not really an issue, but I'd rather not have to do it if it isn't necessary since I have the transaction records.

Another question that is probably obvious, but I am genuinely curious. Don't you actually have to make a certain amount of income that is higher than the expenses to be able to write off? In other words, for example let's say at the end of the year I made $100. I had $50 in expenses. That way there is actually a $50 profit.

Example #2, Let's say at the end of the year I have $100 in expenses and I only made $50. Technically I have a loss of $50. Do write offs even matter at that point?
If it's easier for you to use credit card statements, do that. But unless it's burdensome, store receipts somewhere because they might be useful in the highly unlikely case you get audited.

In your Example #2, you can legally declare a loss. I've done that just a couple of times, but I've had way more years with a profit. My understanding is that many years with a loss is more likely to trigger an audit because it smells more like a hobby than a business to the IRS.

More advice that not everyone will agree with: As long as you have a receipt or credit card statement item, be very liberal and creative about what you consider to be a business expense. The worst that can happen is it will be disallowed. But be sure to account for all income (revenue), and of course don't invent expenses, because both of those are fraud.
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Old 02-26-2018, 02:00 PM
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The "tax preparer" lady is more then likely just doing data entry into a tax program like turbo tax.

The IRA penalty for early withdraw is 10 percent additional tax, unless you used the money for a hardship or there are some other exceptions. All the info in the IRS web site https://www.irs.gov/newsroom/what-if...ey-from-my-ira

Last edited by Humanoid 2.0; 02-26-2018 at 02:00 PM.
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Old 02-26-2018, 02:20 PM
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Originally Posted by J S Machine View Post
Example #2, Let's say at the end of the year I have $100 in expenses and I only made $50. Technically I have a loss of $50. Do write offs even matter at that point?
Yes, you can have a net loss. In fact, that's very common for the first year of a new business. You can count the loss (up to specific limits) against other income, or can carry-over for future years (for when you do make a profit.) Just to warn you though, if you have a net loss for several years in a row, the IRS will likely assume that it's a hobby, and not a for-profit business (and they will disallow all net losses). But for 1 (or even 2 years), it's no big deal.

Last edited by xwing; 02-26-2018 at 02:21 PM.
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Old 02-26-2018, 02:43 PM
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Originally Posted by J S Machine View Post

Example #2, Let's say at the end of the year I have $100 in expenses and I only made $50. Technically I have a loss of $50. Do write offs even matter at that point?
My information is a few years old so you may want to verify it.

You need to have a profit 3 years out of 5 or the IRS MAY reclassify it as a hobby instead of a business. However, there are ways to get them not to. For instance, if you running it as a full time business and that is your only vocation or occupation, they may not change the classification. But as a rule of thumb, show a profit 3 out of 5 years. Doesn't have to be a big profit but a profit.

Also, go to the library and see what type of business you have according to IRS classification. There is a code for just about everything. Then there are reference books that show expense averages by expense type for that type of business. Try to stay close to those averages so that you don't get flagged by the IRS for an audit.
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