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

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

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

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

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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

  7. “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

  8. 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 15th of January, April, June, and September. Form 1040-ES

  9. Income Tax • Net income = gross income – business expenses • Gross income is every dollar your business earns • 5 categories of business expenses • Ordinary business expenses • Depreciation • Start-up costs • Taxes • Shared expenses

  10. Ordinary Business Expenses • Must be ordinary, necessary and reasonable for your trade or profession • Not inventory and not capital expenses • Exs. Advertising Vehicle expenses Office expense Supplies Tools Repair & maintenance Insurance Contract labor

  11. 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

  12. 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: Licenses Equipment Attorney Market research

  13. 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

  14. 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

  15. Business Use of Vehicle • Two methods: • Actual expense. Keep mileage log and all receipts. • Standard mileage expense. Keep mileage log. Commuting miles not deductible. 2010 standard mileage deduction 50 cents/every business mile.

  16. 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

  17. Community Resources • BIG Austin 928-8010 • PeopleFund 472-8087 • ACCION Texas 866-312-3771 • SBDC 210-458-2020 • City of Austin Small Business Center 974-7800 • SBA 210-403-5900 • LAMP of TRLA 374-2700

  18. QUESTIONS?

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