Hello Bloggers! April 15th has come and gone. (What a relief?!!) Don’t relax just yet because now is the time to start planning for next year’s tax return.
In addition, if you are like the many who filed an extension, you may still be preparing for this year’s return. Here are a few tips you may need, no matter the year.
If you are armed with the right information, tax time can be a breeze. I wanted to share with you a few tax tips based on my years of experience as an accountant reviewing financial records, as well as being a small business owner.
1. Don’t go at it alone.
Don’t make the mistake of thinking that tax software such as TurboTax is easy. Such software often asks open ended questions that can lead to large deficiencies and penalties if you don’t have knowledge of the tax law. For example, TurboTax may ask you, “Do you wear special clothing for work?” You check yes. But unless you wear special clothing that is unsuitable for daily wear or is mandatory, you can’t claim the deduction. An example of this would be a hard hat or steel toe boots, which are items that aren’t suitable to walk around in during your normal non-work day.
2. Report all your income!
This should go without saying. However, you would be surprised at how many people don’t report income and say, “ I didn’t receive my 1099.” You are responsible for reporting income regardless of receiving an information return (Form 1099 or W-2, etc) from the person for whom you worked. An easy way to ensure you have the correct income at your finger tips is to solely use Paypal (or other 3rd party payment processors) to collect your business income. This way, at years end, Paypal (or your preferred processor) will send you the required 1099-K* and you don’t have to worry about collecting Forms 1099 from various individuals and/or companies.
Note: I recommend having the business Paypal account
*You will only receive the Form 1099-K if your gross payments exceed $20,000 AND your 3rd party processor processed more than 200 such transactions. However you should still be able to run reports to see your total income if you don’t meet the criteria for receiving a 1099-K
3. Ask the right questions!
When it comes to choosing a return preparer, don’t rely solely on word of mouth. Don’t choose a preparer because you heard that the preparer could secure you a large refund. Remember, a refund means you are receiving money back because you overpaid. So don’t think you will get an $8,000 refund if you haven’t given the government at least that much during the prior year in the form of withholdings or estimated payments. Everyone’s tax situation is unique. If you do meet with someone whom you were referred to, ask them if they have experience with your industry. For us that would be blogging. Ask what their credentials are. If something doesn’t look right, ask! Remember, even if you have a preparer, YOU will be responsible for any errors on the return.
4. Is your home office really an office?
The home office deduction is a tricky son of a gun! Many people think that if they work in their home they are entitled to deduct expenses related to doing so. That simply is not true. Make sure that you have a DEDICATED space that is used for work. No kitchen or dining room table. Also be sure it is a space that, if audited, would look like an office that is used for work and that is for YOU and YOUR business. Not the space set aside for the kids to do homework on the family computer. Also, remember that the first telephone line in the home is not deductible. So if you use the home phone for your business, you can’t deduct that cost, unless it is the second phone line.
I hope these few tax tips help you at tax time!!! Now go out there and MAKE THAT MONEY!
Author Bio: Crystal Colón is the owner of Flor Bella Boutique, an online accessory shop. She is a mother of two daughters. Crystal is a veteran of the US Army having served her country during Operation Iraqi Freedom. She has a bachelor’s degree in accounting and an MBA. Since 2006 she has worked in her current position evaluating the accounting records of small businesses and self-employed individuals. She will be speaking at TBEX North America about blogging and taxes.