In two weeks, all of us in the United States have to file taxes. I started last week and have spent only about 1.5 hours on it.
I’m halfway done.
I got to thinking about how others handle this and asked around. I found out that the random shoe box stuffed with receipts is pretty common—maybe even the preferred method.
I don’t do it this way, and admittedly make it hard on myself because I more or less “do taxes” every single day of the year by inputting data and scanning my receipts into the Quicken Home & Business software. I spend perhaps about an hour a day on this, and sometimes more because I play with the program and generate P&L statements to check up on where I’m going tax-wise through the year.
My company is tiny by comparison to other wood floor companies, but this is the only way I know how to do it. I was self-taught.
Through this experience I’ve noticed a few things that may be helpful during this time of year. I hope so, because I would regret if I were wasting my time sitting here at the microbrewery while I write this. Keep in mind that I am NOT a tax accountant! Be sure to check with yours as you make tax decisions.
Okay, Thing 1: The IRS does not care if you are a corporate god, nor do they demand and/or penalize you for making bad decisions.
Example: My grandmother was a prolific painter, and she created some amazing pieces. One of which was a chalk painting of herself and my mom when Mom was a tiny newborn. It was stunning for me to behold, and it was priceless to me. The interesting thing to note is that it was un-framed and rolled up in a paper tube. Well, I have a home office, and the IRS allows you to deduct expenses against your taxes that pertain to your home office. So, I had the painting framed. It cost me $162.64, and I put it in my home office.
After a bit of time, I reasoned that that painting didn’t look right in my home office and took it down placed it in my living room next to her other paintings I had framed over the years.
I made a very stupid business decision, and the IRS cannot and will not “ding” you for that. The deduction stands, and is perfectly fine to take on your Itemized deductions portion of your own taxes. I found that out during my exposure to the bookkeeping end of our self-employed careers.
Thing 2: There is no law that says you HAVE to make a HUGE profit every year.
There also NOT a law that says you must make a profit at all. For all they know, we are all a bunch of bumbling bumblers who can sand a floor Fudge-flat in our sleep yet forget to pay our bills after we get paid.
That is not our problem—tax-wise.
So, I found out that by keeping track of what I spent, how I spent it, and for what purpose I spent it, that in some cases that money is tax-deductible. That was a HUGE revelation.
I found out that if I went to the self-serve yogurt shop and talked about wood floors with my guest, that qualifies as a “business meeting” and is tax-deductible! (Who knew?!)
I also found out that ALL the money I put into my work vehicle was tax-deductible. I found out that the IRS doesn’t care what you use for a work vehicle. I could use a skateboard for all they know. If I used it to transport all my tools and employees to the job, all those skateboard bearings and stuff would be tax-deductible.
I’m being funny with the skateboard thing, but my work van, SUV and economy car are all used solely for business, and I can rightly use the expenses on these vehicles to mitigate my tax burden. A few times I have used my motorcycle in nice weather to ride to an estimate. I had to fill up with gas to get there, and you know what? That gas receipt is a business expense.
I end up having so many expenses, with receipts to show for it, that in some years my taxable income was offset by so many expenses that I show a loss on the balance sheets. Not my problem. I’m an idiot at business—sue me.
Of course, our tools, business insurance, wages paid and other obvious expenses, are all tax-deductible, but I’m being creative to make a point.
Thing 3: Don’t do stupid stuff that sends up a red flare that says “Audit Me” so high and so bright that even the casual IRS person in Washington can see it without a telescope.
Don’t ask for trouble. Stuff like hoarding cash and claiming your purchases with that cash on your taxes as an expense—that is not a bright idea.
Depositing more than $10,000 of undeclared cash into your bank account is another example. It is best not play with maneuvers like this. But being “stupid” is not an offense.
President Reagan’s tax accountant suggested he buy 22 cattle and let them roam his property in California. So he did, and then he could drastically reduce his tax liability with an “agricultural preserve” deduction. Clever! And legal.
Thing 4: Keep good records.
There is NO substitute for this. Ask for, and keep, receipts for every single monetary transaction you make—even cash receipts. Those are considered “petty cash” and are tax-deductible. The shoe box thing just doesn’t serve you well, so move away from it if you can.
This is where reliance on an accounting program is maximum essential. I like Quicken because the data easily migrates to Turbo Tax (they are both Intuit products). But I have heard good things about Mint from Microsoft, and QuickBooks, too. Whatever program works for you, go with it and master the use of it.
I know, I know, you don’t have the time to do all this nonsensical stuff, but no one “has” the time. But funny thing, we do have time to sift through the shoe box for 1.5 hours to find every single gas station receipt, right? Don’t we? By inputting transactions every day, you can easily just ask the program, “How much did I spend on gas?” and the answer just pops up. You can even find out how much gas you used on any one job if you so desire. Just keep on top of this, and April 15 will become just another day.
You don't have to be a God-like accountant
If you are reading this, then you are automatically in the top 1% of the entire wood floor world, and I salute you. Keeping track of your money with April 15 in mind is 100% worth your time and effort.
In summary, do your best. It is NOT expected that you all be God-like tax accountants. I do my own using the Quicken program and TurboTax. It is okay to make mistakes by accident. In times of an audit, “intent” is a very important factor in mitigating any penalty. The TurboTax program helps in this regard. It can “sense” when things don’t add up right and will caution you not to submit your return before you alter your data.
Well fellow pros, I hope these hints find you well, and I also hope you all get a refund. It’s really a whole lot easier than installing a herringbone parquet down an “S” shaped hallway … and I know you got this.