What’s just around the corner? Taxes!
However, this year, you’ve decided to check out the IRS Small Business/Self-Employed Virtual Tax Workshop (about 9 Videos). It’s a great way to find out about tax regulations and tips for your business, especially if you’re new to the world of business ownership.
In a word, this workshop is amazingly convenient (okay, that’s a few more words, but good ones!). You can view what’s relevant to you, start and stop as you please, and go back when you need a refresher (or when your business grows (and maybe you hire your first employee!) and you need updated advice).
Lessons:
- What you need to know about Federal Taxes and your new business
- How to set up and run your business so paying taxes isn’t a hassle
- How to file and pay your taxes using a computer
- What you need to know when you run your business out of your home
- How to set up a retirement plan for yourself and our employees
- What you need to know about federal taxes when hiring employees/contractors
- How to manage payroll so you withhold the right amount from employees
- How to make tax deposits and file your payroll taxes using a computer
- What you need to know about Federal Unemployment Taxes (FUTA)
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Need to hold onto these
Want to send a group of freelancers running for the hills? Easy – just tell them it’s tax time.
If your freelance career doesn’t involve accounting (or numbers, really) in any way, shape, or form–or you managed to get away with skipping all of your econ classes during college–then this guide to write-offs is definitely for you. And as always, an accountant can really help get you your largest write-offs.
Home Expenses
If you have space in your home that you use solely for work, then you can deduct it for tax reasons. You’ll have to prove, however, that it is really a work-oriented space (that means no deducting the TV/La-Z-Boy room, kitchen, or rock-climbing annex.) Just make sure to multiply the space of the office by your rent/mortgage, then deduct that amount. Additionally, if you can prove that your cell phone is used for business, feel free to deduct (home phone lines are usually never subject to write-offs and cell phones might be only partially deductible.) A portion of your insurance and mortgage interest might also be available for a write-off.
Travel/Transportation
Travel from your home office to and from business conferences, meetings, and for research is definitely a tax-deductible expense–even if you’re just running to the store to buy paper (as long as the paper isn’t an afterthought once you’ve picked up your midnight Doritos meal). Keep meticulous records of your gas mileage, receipts, and toll payments; you can also deduct a reasonable amount of your car payment and insurance if you use a car for a significant percentage of your business travel.
Memberships
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*Sung
Not these type of cogs
COGS is not just another complicated accounting term that’s on your tax forms, they’re actually fairly simple to understand (and you can record them in FreshBooks).
What are they?
COGS stands for Cost of Goods Sold, which essentially explains what it is. This means that for something you sell, COGS is the cost that directly went into that revenue. This is more easily explained for a product, as COGS are the materials and costs needed to create that product, such as the iron needed to make steel and the cost to get that iron to your factory. For a service, it’s a little more complicated, but it the same logic, as they are the items or services you resell (or re-bill) to your clients. For example, if you hire a contract web designer to help you design a website, and then re-bill their hours to the client, this is a COGS for you.
What are not COGS?
Every other expense is not a COGS. For example, the salary you pay to your marketing or administrative employees, as they are paid at a fixed rate that does not vary based on how much your business sells, is not a COGS. Same as rent, utilities, and marketing. Say if you sold nothing (bummer), what expenses would you still have? If you still have to pay for them, they are likely not COGS. However, if your staff directly contribute to revenue, that part of their salary can be a COGS (always best to talk with an accountant in specific cases).
Why do they exist?
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Contributed by FreshBooks customer Mariette Knoblauch. For a Canadian perspective, please read ThatBookKeeper’s post on FreshBooks and Taxes.
As you’re getting ready to file taxes this April, you’re probably running into a few frustrations, especially around deductibles and write-offs. One easy way to avoid this is to use expense categories in FreshBooks, so you can fill in forms in minutes.
Expense categories in FreshBooks can be added at the click of a button, and tax time will be a breeze if you set them up to match the categories that you use on Schedule C (the tax form for U.S. sole proprietors).
First, look at your Schedule C from last year. What expenses did you have? There are the standard listed expenses, some of which are commonly used by most people (Advertising, Office Expense, Supplies) and some that no one has ever used (Depletion?).
A few of these categories merit special treatment in your FreshBooks setup. Contract labor is the category for people who provide services to your business. You can use FreshBooks Time Tracking for your contractors and have a complete record of all your contract labor expenses for the year. When you hire a contractor for your project in the US, send them a form W-9. The irs.gov website provides a fillable pdf form that you can email to your contractors. This gives you all the information you need to do the required 1099-MISC for them at the end of the year.
Mileage may seem like a small amount at 51 cents a mile (for 2011), but it can add up to big savings. How many miles a week do you drive for business purposes like meeting with clients and vendors, going to professional networking and educational events, picking up supplies, and delivering finished projects? If you drive an average of 50 miles a week, over the year that’s 2,600 miles, which would be a $1,326 deduction – not too bad! The IRS does require that you keep contemporaneous records of where you went and why it was business related. You can make an expense category for Mileage in FreshBooks, and record all the necessary information in the notes section. You can even get the MiniBooks iPhone app and record your business trips on your phone as you go!
Keep your business meal expenses separate using the Meals & Entertainment category. Unlike other business expenses, you can only deduct half of what you pay for meals, even while travelling. After all, you’d have to eat anyway, no matter what you were doing. As with mileage, you can use the notes field to record who you were with and the business purpose for the meal.
There are all kinds of deductible expenses besides the standard ones, and you can make as many custom categories as you like. In your List of Categories on the Expenses Tab, just click “New Category”. Each business will have its own individual expense categories. You can deduct any expenses that are “ordinary and necessary” for your type of business, and that will be different for every business. A cat-sitter can deduct feather dangly toys and kitty treats.. A cupcake business could have sprinkles and cute pink boxes. An exotic dancer has even successfully deducted her extra-large implants (after a tax court case – the IRS was not initially sympathetic). Every day people are inventing new types of businesses, and they will have unique expenses, so don’t feel you have to be limited to the standard categories.
With all your expenses sorted into their tax categories in FreshBooks, and your income from your invoices already there, the Profit and Loss report will have much of what you need for doing your US Schedule C at the end of the year. You may have other items such as home office that will have to be added, but most of the information you need will be there in a convenient format to make doing your taxes quicker and easier.
Mariette Knoblauch specializes in individual and small business income tax filing at The Ballard Beancounters.
“Don’t let your site be broken!” One of several lessons Ben Cherry shared at the latest sold out TechTalksTO (supported by FreshBooks). He spoke to the code-savvy crowd about best practices for development strategies and proven rules for maintaining solid and consistent web construction. According to Ben, being thoughtful about the user experiences in your web development process will make your application stand apart from other less flexible products. Do you ever think about that 1% of your users using obscure or outdated browsers? Or how powerful a service error message can be?
Consider the user at every stage
Ben declared that every user matters. He maintained that developers should always be thinking about the ways that your content can be made more accessible. Your main aim, he stressed, is to “deliver a good, non-broken experience to everyone.” His tips: review your website in a screen reader, make your URL’s easy to guess and to speak, and always ensure tests have passed before shipping (decomposing parts of your application to improve its testability as required).
The Fail Whale keeps users happy
However, if you’re busy beating yourself up over errors, give it a rest. Ben saw errors as a normal part of a well-designed system so long as you are always aiming for recovery and staying in open communication with users about the issue.
Think of the ‘fail whale’: an image representing a glitch in the Twitter feed yet totally able to convey a regretful and accountable sentiment on behalf of Twitter. The charming whale could easily have been the standard confusing bad gateway error message but instead gently asks for patience. Ben advised that a good error message shouldn’t be underestimated. A good failure message should:
- Assure the user that the failure wasn’t the users fault
- Communicate the problem is known and a fix can be expected when they return
- Be helpful and restore faith in the system
- Be playful
To keep up on upcoming TechTalksTO, stroll over to the website and join the conversation!
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