Startup? Deductions that Can Bail You Out Come Tax Season

by Kaylie Phelps

That dreaded time of the year is quickly approaching, when we have to add up our pluses and minuses to report to the IRS. If it’s your first year declaring taxes for your start-up, it’s even more important to research the rules of deductions and not to miss out on any opportunities to lower your taxes. We put together a list of a few of the things that can bail you out come tax season.

The Start-Up Phase

Before your business is up and running, you are likely to have incurred many expenses from the process of analysis to building your business, which you can deduct. This period is called the startup phase and goes on either until you open up your doors for business or until you start earning income from your business. This means that once you have launched your business or made the first sale, your costs are now considered tax-deductible expenses. Start-up costs include employee training, wages, consultant fees, advertising, and incorporation or organization fees, but remember that once your startup is launched, these costs no longer fall under the category of start-up expenses. The IRS also warns of what you cannot deduct as start-up phase expenses, such as interest, taxes, or research and experimental costs.

How much you can deduct in start-up costs, depends on the amount of your deductible expenses. If they don’t exceed $50,000, you can deduct $5,000. However, if your costs exceeds $50,000, the amount you are able to deduct during your first year’s taxes, will be decreased by the amount that you exceed $50,000. As an example, if you have $53,000 in start-up costs, you can deduct only $2,000, which is $5,000 minus the amount above $50,000.

If you exceed $55,000 in expenses, you won’t be able to deduct any of these costs in the first year. Instead, they will have to be amortized over the following 15 years. This can be beneficial since many startups don’t make much money during the first years, and the deductions will help later when they are more profitable, in order to minimize taxes. There is a third option of postponing the deduction of start-up costs until you sell or close the business, but usually business owners don’t wait this long to take advantage of tax benefits. If your business is a corporation, partnership, or LLC, you can take an additional $5,000 off for organization expenses, which makes a total maximum of $10,000 in deductions the first year.

What to Deduct?

Most of us are familiar with such obvious deductions as office space and material, phone, fax and wi-fi, travel, business meetings, business lunches, inventories, wages etc, and on the IRS website (irs.gov) you can easily read up on the percentage and maximum amounts permitted for the deductions. However, there are deductible items for your business that are less obvious, and of which you may be unaware:

– You are allowed to deduct membership fees and annual dues of local, state, or national industry organizations, which allow you to network and gain important industry contacts.

-Don’t forget to deduct the cost of industry-related magazine subscriptions, along with other such resources which allow you to keep up with your industry. They are tax deductible, and many smaller write-offs adds up.

-Travel costs to business meetings include airfare, hotel, meals, taxis, Uber, car rental, gas, and parking costs. Make sure to save itemized receipts.

-Donations to IRS-recognized charities are tax deductible and can therefore help lowering the profit if needed. Eligible organizations include Salvation Army, Red Cross, Boy Scouts, as well as and government organizations that exist for public purposes such as public libraries, so there are plenty to choose from.

-Retirement plans offer safety for the future along with tax advantages for the present, both for yourself and your employees.

-Remember that business owners and sole proprietors are eligible for health insurance deductions.

Keep records!

How you file your taxes doesn’t matter if you don’t keep records to back it up in case of an audit. Make sure to read up on the IRS (irs.gov) specifications of what paperwork to keep, how to keep it, and for how long. Basically, all documents that identify your expenses, the recipient and the amount, and the proof of payment need to be kept, along with canceled checks, account statements, credit card receipts, credit card statements, all invoices and petty cash slips. You need to save gross receipts such as deposit information, receipt books, invoices and Forms 1099-MISC.

For asset records, you need to have documents to show when and how the asset was acquired, how much it was purchased for, improvement costs and deductions taken such as depreciation and casualty loss. You also need to explain how you used your asset, and the selling price if you exposed of it along with expenses of the sale such as purchase and sale invoices, closing statements, and any canceled checks.

These are just a few reminders to help you prepare for your taxes, in order to make most out of the different areas of deductions allowed by the IRS.

Crush the PMP Exam is an online resource dedicated to helping professionals pass the PMP exam and become competent professionals in order to help small businesses make sound decisions.

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Don’t Use Homemade Laundry Detergent.

by Mrs Money

Years ago, I hopped on the homemade laundry detergent train.  I thought it was cheaper, more natural, and worked just as well as commercial laundry detergent.  I used it in my high efficiency front loading washing machine for years until we had Penny and then I decided to try a different laundry detergent on our cloth diapers.  I figured they were the dirtiest laundry I would probably ever wash so I wanted a heavy duty detergent (aka not homemade) to tackle the filthy diapers.  I bought liquid Ecos laundry detergent to try, as it is Earth friendly and claims to be “green”.  It didn’t work very well for cloth diapers as it’s a pretty gentle detergent and the liquid I bought didn’t contain enzymes.  At that point I decided to try to use it up on my regular laundry when the homemade ran out.
oilspots copyThat is when the oil spots started appearing on our laundry.  I would put in clothes that I knew didn’t have oil spots on them in the wash, and they would come out like this.  I can’t tell you how many hours of my life I wasted trying to figure out the cause of these oil spots.  I cleaned the filters to my machine, switched from powdered to liquid laundry detergent, switched back to liquid, tried scented laundry detergent, tried unscented laundry detergent, tried everything.  I noticed the worst spots would show up on dark clothing, usually cotton knits.  It wasn’t until I put in a navy pair of cotton jersey t shirt sheets and they came out with the spots on them that I knew without a doubt that something was wrong.  I called an appliance repair place and they told me that there was no way that the machine could be leaking oil into the drum of the washing machine so there had to be something else wrong.  They offered to send someone out to check on the machine, and I agreed because my next step was to take the washing machine outside and set it on fire.  I am not joking-I was so tired of dealing with washing laundry and it coming out worse than when I had put it in!

The repairman came out, took a look at the washer and was disgusted.  He said the machine was absolutely filthy and had a gunk build up around the rubber boot at the door and all around it.  He removed the rubber boot and scrubbed it with a brush in the sink.  He also scrubbed around the drum and where it met the rubber boot to remove gunk.  He ran two washing machine cleaning cycles with washing machine cleaner and told me that should help.  What was happening was the clothes would be washing and when they started to spin they would shake the rubber boot so hard that it was basically spewing the nasty gunk from around the rubber ring back onto the clothes.  Disgusting!!

He recommended we switch to a liquid laundry detergent and use washing machine cleaner once a month and we shouldn’t have any more problems.  We followed his advice and haven’t had any problems since! Whew.  I also have wondered if it was bad for our pipes and septic system as the homemade laundry detergent contains bar soap which is notorious for build up.  That is the main problem with the homemade detergent- all it is is soap, washing soda (a water softener), and borax (another water softener).  Good laundry detergent needs surfactants and sometimes enzymes in addition to water softeners.  Surfactants lift away dirt and enzymes eat stains.  The water softeners allow the water to be softened so that the detergent works more effectively.  We generally buy store brand free and clear laundry detergent now since I can’t stand scented detergents.  We’ve been very happy with it, and I am so pleased to not be dealing with those annoying oil stains any longer!

What kind of laundry detergent do you use?    

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