Category Archive: blog

1. Don’t Forget These Deductions

   Whether you’re filing your business taxes as a self-employed business owner for the first time or the 20th, there are certain deductions that can save you thousands of dollars a year. Here, we’ll walk you through the most common — and not so common — tax deductions for the self-employed, and some expenses that are not deductible.

    

   What is a tax deduction?

   If you’re filing your self-employed taxes for the first time, you’re likely wondering what exactly a tax deduction is. Essentially, a tax deduction is an amount of money the Internal Revenue Service allows you to subtract from your Adjusted Gross Income (AGI) in order to reduce your taxable income. In some cases, taking enough tax deductions can place you in a lower income tax bracket, substantially reducing the amount of taxes you pay annually.

   For an expense to be deductible these expenses must be seen as “ordinary and necessary” in the operation of your business. These can range from advertising to utilities and everything in between. Remember, however, that you can only deduct the business-use portion of the expense you’re claiming.

   Here are some of the most common deductions for the self-employed:

   • Business Insurance
     Insurance coverage intended to protect your business (fire, theft, flood, property, malpractice, errors and omissions, general liability, workers’ compensation)
   • Car Expenses

   The business portion of your actual car expenses (gas, insurance, registration, repairs and maintenance), or public transit expenses (buses) if you use local transportation

   • Depreciation and Section 179
     Depreciation expense on business assets (office equipment, tools, furniture, cars). Note: The IRS requires you to use Form 4562  to claim these deductions.
   • Dues and Publications Expense

   The cost of specialized magazines, journals, and books directly related to your business is tax deductible as supplies and materials, as are dues or fees for certain professional membership organizations

   • Education Deduction

   Any education expenses you want to deduct must be related to maintaining or improving your skills for your existing business.

   • Home Office Deduction
     Expenses related to a home office ( business portion of rent, utilities, repairs, insurance, home mortgage interest). You’ll need to fill out a Form 8829, unless you use the simplified method
   • Interest Expense

   Interest you pay on loans, mortgages and credit cards are all deductible if they are business related

   • Meals
     Meals that you had with a client and during which you engaged in business discussions, or meals incurred while traveling on out-of-town business trips. Fifty percent of business meals is deductible
   • Office Expenses

   Office expenses (cleaning services for your office, general office maintenance) that don’t have a separate category

   • Retirement Plans Contributions Deduction

   Contributions to simplified employee pension individual retirement accounts (SEP-    IRAs), savings incentive match plan for employees (SIMPLE) IRAs, and solo 401(k)s reduce your tax bill now and help with retirement later

   • Software

   Adobe, Microsoft Office, Calendly- any of these computer software applications used for the business can be deductible as ordinary and necessary for your business

   • Supplies

   Any supplies that you use and replace (cleaning supplies if you clean homes, office supplies like pens or printer ink, hot/cold bags if you do delivery)

   • Travel

   Travel costs related to business trips (lodging, airfare, rental cars, local transportation). The travel must be overnight, away from your residence and primarily for business

   • Other Expenses

   Any other business expenses that are ordinary and necessary (education to improve skills for your job, banking fees, association dues, business gifts, industry magazines)

   Expenses that are Non-Deductible:

   • Health insurance, auto insurance, disability insurance
   • Expenses other than Parking/Tolls if you use the standard mileage rate deduction
   • Car depreciation if using the standard mileage rate
   • Home office expenses if you use the simplified method
   • Meals for yourself on lunch breaks, dues for athletic clubs
   • Personal expenses
   • Political Contributions
   • Rent expenses on any property you own
   • Commuting Expenses
   • Certain gifts
   • Travel expenses for extra travelers

   Keep Supporting Documentation
   Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. These documents contain the information you need to record in your books. It is important to keep these documents because they support the entries on your tax return. You should keep them in an orderly fashion and in a safe place. For instance, organize them by year and type of income or expense.

   While it may seem like a frustrating and time-consuming process, tracking your business expenses and claiming them as deductions can save you a large amount of money when it comes time to file taxes.

   It is important to note that tax laws are constantly changing, and these provisions may be modified or extended at any point before 2025. Therefore, reviewing the most common self-employed taxes and deductions is necessary to keep you updated on any changes required to your quarterly estimated tax payments.

   And always seek out the assistance of a tax expert who can keep you updated on changing tax laws, keep you out of trouble with the IRS and help ensure you are maximizing your business deductions.

    

    

2. So You Want To Start A Business?

    

   

   So, You Want To Start A Business….

   • You have a product or a skill
   • You know your audience
   • You’ve done your research
   • Now What??

   After all this, there are still several practical steps you must take before you hang out that Open For Business sign. Ensuring you complete these steps will put you on the right footing and avoid blunders down the road. Here are my practical and necessary steps for starting on the right track: This is a general primer to get you started, not an exhaustive list.

   1. Write a Business Plan
      The business plan is the roadmap for your company. It’s where you’ll put all the important planning and brainstorming into one document and describes in detail the who, what, when, where how and why of your new business. It doesn’t have to be a novel, just be sure and cover the essential pieces of your business.  A good business plan is organic; it will grow and change as your business grows and changes- but it keeps you grounded now and in the future.
   2. Brainstorm with Others

   Take a step back and solicit feedback from friends, family and colleagues who might have some knowledge of the industry or in starting a business.  Seek out mentors or other business owners for guidance.  Get their opinion of your business plan.   They might have questions you didn’t think of or notice something that slipped by you. They have practical knowledge you don’t yet have and can be an invaluable resource as you begin this journey.

   3. All the Legal Stuff

   If possible, at this step you should retain the services of a lawyer and/or accountant. At the very least you absolutely want professional advice. Now is when you’ll begin forming your business and filling out the necessary paperwork with federal, state and local governments. This can involve (but is not limited to):

   • Choosing Your Corporate Structure

   There are many types of businesses you can form, including LLCs, S-Corporations, partnerships, sole proprietorships and more.  The right one for you will depend on issues like cash flow, number of owners and how you want to structure potential liability. The state of Maine has forms that you complete to register your business with the State of Maine.  These forms can be found here:  https://www.maine.gov/sos/cec/corp/index.html

   • Register and Obtain a Sales Tax License

   If you will be selling products, you will need to register your business and obtain a sales tax license.  The state will determine how often you will need to submit sales tax whether it is monthly, quarterly, annually or bi-annually.

   • If you will have employees, you must register with the State of Maine Department of Labor. There are several steps involved in hiring, so work closely with the Department of Labor to ensure you are adhering to all legal requirements.
   • Obtain Necessary Licenses from your city or town

   At this point be sure to check in with your town or municipality.  They may have specific licenses and/or permits that they require before you can open your doors.

   • Obtain an EIN number from the IRS

   An employer identification number (EIN) is a nine-digit number assigned by the IRS. It’s used to identify the tax accounts of employers and others who have no employees. The IRS uses the number to identify taxpayers who are required to file various business tax returns.  It also protects your social security number from being on various documents.

   • Operating Agreements

   Some banks now require you have an operating agreement in order to open a business account.  An operating agreement is a key document used by LLCs because it outlines the business owners financial and functional decisions including rules, regulations and provisions.

   4. Open Bank Accounts

   Open bank accounts in your new business’ name. I always recommend at minimum one checking account and one savings account.  The checking account can be used for the day-to-day operations, and the savings account can hold money such as sales tax, payroll, and other liabilities.

   5. Take Care of Little Details

   Now is a great time to step back and take stock, because the best ideas can be crippled by the smallest details.

   • Make sure your business has comprehensive insurance for issues ranging from fire to property damage and legal liability.
   • If you will hire employees, put a documented process in place for hiring and firing. Have your workers compensation and unemploymentinsurance paperwork filed and in order.
   • Figure out how your business will do its accounting and have that system set up and operational, whether you’ll do it yourself or have hired a professional.
   • This is the time to begin marketing. You should always think about how to get your business’ name out into the community. Don’t let up once the doors open. Look to social media, advertising, foot traffic and local networking to get people in.

   6. Put together your team

   And finally, and maybe most importantly…..

   As a business owner you can’t be expected to be an expert on all things: marketing accounting, hiring, sales, inventory, etc..,   The first and most important network every entrepreneur  must build is their own support system. A strong team includes not just internal managers and staff but also outside advisers who can help you keep perspective, identify great opportunities and execute important ideas. This was a priority for me as I started my business  and even today I rely on advisors, mentors, colleagues and friends to help keep my vision clear and my path visible.  Whether internal or external it’s necessary to have the right team in place: people you can turn to, who will hold you accountable and who will keep your business in alignment with your vision.

    

   Although this may seem overwhelming, this can be done step by step.  Be diligent, create lists and sub lists and hold yourself to achieving these goals on time…as Jimmy Carter said,  “You can do what you have to do, and sometimes you can do it even better than you think you can.”

    

    

    

    

    

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