Day 23: Business Tax Tips
We know that not everyone who signs up to become a Red Aspen® distributor is going to have a background in accounting (If ANY!). Come on! You didn't sign up to get crazy with numbers - you signed up to sell amazing beauty products! Well, thank goodness for business tax tips. We have compiled a list of ends and outs for you as you begin navigating how to handle your business taxes. Don't worry! We've got you covered with ALL the basics of what you need to know. Got your pen and notebook ready? Because here come the tips...
- Take a Year End Inventory of your sellable product and add up the retail value vs. the wholesale cost. You will be using this number to calculate for your retail sales tax!
- Gross Receipts or Sales: Always report all income you receive. Add up your total personal sales for the year, commission income, incentive awards etc. and separate how much was collected in sales, tax, shipping & handling as well as any discounts offered.
- Returns & Allowances: Keep record of any costs you paid on product that was returned to you. This is also where you will keep copies of any bad checks you accepted from your customers that were returned by your bank.
- Cost of Goods Sold: If you carry inventory, this line is the result of the calculation of the cost of goods sold. Your beginning year inventory subtracted from the amount sold/check against your remaining inventory.
- Other income: This includes commissions, prizes and awards received and/or reported on the W9 Form.
- Advertising: File records of all the money you spend to have advertising done, such as newspaper ads, fliers, business cards, the preferred customer program, or any other type of advertising and do not include charitable donations. (Advertising DOES include gift baskets of your products that include your business card and other promotional materials that you provide.
-Car Expenses: This is one of the largest deductions you will be able to take. You must keep a mileage log for every car you use for business. ( I use a new check register to keep track). You can also file information here related to lease or purchase payments, auto insurance, repairs, gas, oil, tires and anything else having to do with operation of your car for business. If you are driving a company car, you still need to record your business and personal miles, plus all of your out-of-pocket expenses like gas, oil, parking etc. If you use more than one car for business, you need to keep separate records for each.
- Contract Labor: If you pay an assistant to work in your business, include those payments here. If you pay your assistant $600 or more, you will need to provide a Form 1099 by January 31st of the following year. The reporting requirements include all payments including payments of "product" at fair market value or cash. Do not include household help here.
- Depreciation: File receipts for all equipment purchased for your business in the file folder labeled "Office Supplies and Equipment". Also, record the information for any equipment or furniture that is converted from personal to business use. This is also where you record all of the expenses you have for furnishing and decorating your office at home, as long as that office is used regularly and exclusively for business. For each item, your records should contain a description of the item, the date it was purchased, the purchase price, the date it was first used in your business and the percentage of time that item is used for business.
- Insurance: Include payments for product, umbrella policy or business contents insurance here and do not include homeowners or medical insurance payments here.
- Interest - Other: Include amounts for business interest paid on loans, credit cards, company processing fees, etc. Try to avoid mixing charges for your business and personal items on the same credit card. For credit cards used strictly for business, you can deduct all of the interest, as well as the annual fee if there is one. If you mix business with personal purchases, you will only be allowed a percentage of the interest and fees as a business deduction. It is better to use one card strictly for business and save another card for personal use.
- Legal & Professional Services: With this, include payments for business tax preparation, accounting, bookkeeping and legal services and do not include legal or accounting fees that do not pertain to your business.
- Office Expense: Include your receipts for everything it takes to keep your office running. This includes things like office supplies, rubber stamps, trash bags, etc. If your postage is less than $10 you can include it here. Otherwise, you will need to have a separate category for postage.
- Rent or Lease - Other business property: This includes payments for the rent or lease of commercial space including training centers, meeting rooms, etc. Be sure to include your portion of rent paid for a training facility, even if rented with others in your business and if you pay the expense, you are allowed a deduction.
- Repairs and Maintenance: This includes amounts paid for repairs and maintenance of business equipment only (not cars or business portion of your home). This could be money paid for actual repairs to a FAX machine, computer, etc. or a monthly fee paid for a maintenance contract on a copy machine.
- Supplies: This includes business supplies not included elsewhere. Examples might include things like film and processing, books, tapes, etc.
- Taxes & Licenses: Be sure you understand the way your company handles sales tax. Any sales tax payments made as a result of filing sales tax returns should be included here. This is also where you include payments made for the employer's portion of payroll taxes if you have any, and local business and occupational taxes, licenses and fees, if they apply to you.
- Travel: File all payments for airline tickets, taxis, motels, hotels, tolls, tips to taxi drivers, bellmen, etc. Include dry-cleaning or laundry while on the road overnight as well as your dry cleaning or laundry of clothes from the business trip when you return home, and any other expense related to travel EXCEPT meals.
- Meals & Entertainment (50% deductible): Always note who, when, why (business purpose), cost. Receipts are only required for expenditures over $75.00. You can include meals that you share with customers, team members, or prospects as well as your own meals if you are away from home overnight on business travel.
- Utilities: File receipts for the basic cost of a second phone line in your home that is used for business, plus the cost of fax lines, computer lines and all business long distance. You may also include the cost of any custom calling features and cell phones used in your business. Also, keep receipts for expenses for utilities in training centers or your office if it is separate from your home utility bill. Do not include utilities for office in the home here.
- Wages: Include wages paid. This line should match employment tax returns and W-2's filed. Do not include wages paid to domestic employees here.
- Other Expenses: This includes meetings, workshops, career conferences and seminar registration fees. Food costs for in-home meetings, postage & shipping (if over $10 per month), business gifts - $25 per person per year, business dues (networking groups, not country clubs) ,training fees, etc. are also to be included in the other expenses category.
- Home Office: Form 8829 must be completed to show home office expenses. File receipts for home maintenance and repairs, insurance, utilities, rent, property taxes, security alarm, mortgage interest payments, trash pickup and yard maintenance, etc. You should also note the total square footage of your home and the square footage that you use exclusively and regularly for your business.
- Inventory: You must keep an accurate count of your inventory at your cost basis as of January 1st and December 31st each year.
- Purchases subtracted from the cost of items withdrawn for personal use: Include the cost of all inventory purchases (at your cost) plus purchases from other sources. Also, keep records showing the sales tax paid on these purchases (at retail) and any shipping, freight or postage that you paid to get the product delivered to you. Keep a separate list of each of the following: (1) All items withdrawn from inventory for personal or family use; (2) Items used as demos and displays; (3) Items given away as gifts,
samples or hostess gifts.
- Other costs: Include receipts for any other expenses to assemble or present items for sale. This includes items such as flowers, baskets, ribbon, wrapping paper, etc.
- Donations for Business / Charitable: This includes auction basket donations, partnering for profit (write-off the % you donate to charity), etc.
Are you tired yet? My goodness, that was a ton
of amazing tips on such a wide variety of topics. Now, take a breath, regroup and let's move on to dealing with your personal income from your sales. YOU CAN DO THIS!
This will all come in handy when you come to the end of the year and adding up your expenses verses your income! Thankfully majority of your Red Aspen sales will be recorded through your personal website so that will be easy to track. However you need to make sure that you are also recording your in person sales as well! If you haven't started doing this yet, don't fret! Start today and it will seem a lot less intimidating when it comes to the end of year taxes.
As I said before, your sales are a BUSINESS and need to be treated as such. You need to maintain these records. If you didn't do this for 2017, get your boxes ready for 2018 and know that IT'S OKAY!
Treat your Red Aspen® adventure as the business it is. You need to be prepared for all that those wonderful benefits bring and a part of that is paperwork and records.
Don't stress sweet lady! You have big things ahead!