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 taxesIt helps you track your income and

expensesYou may get a refundYou will pay into your Social Security

accountIt may help your immigration statusIt may help you buy a homeIt may help you get a loanIt may help you sell your business

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

Why should I keep records?It’s in your interestYou may get a larger refund on your tax returnYou’ll pay more into your Social Security accountIt may help with immigration statusIt may help you get a business loanIt may help you sell your businessIt may help you buy a homeYou’ll sleep better knowing you have a good

understanding of where your money is coming in and going out

Rules Of Good Record-keepingKeep Up-to-Date RecordsTrack Business IncomeSave & Organize ReceiptsReview Records WeeklyTrack Your TimeReconstruct ImmediatelySave Your Tax Records at Least Three

Years

Sole ProprietorSimplest 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

“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

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

Income TaxNet income = gross income – business

expensesGross income is every dollar your

business earns5 categories of business expenses

1. Ordinary business expenses2. Depreciation3. Start-up costs4. Taxes5. Shared expenses

Ordinary Business Expenses

Must be ordinary, necessary and reasonable for your trade or profession

Not inventory and not capital expensesExs.

Advertising Vehicle expensesOffice expense SuppliesTools Repair & maintenanceInsurance Contract labor

DepreciationDeduction 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

Start-up CostsExpenses before your business opens

Deduct up to $5K in first year your business is open

Deduct remainder over next 15 years Exs:

Licenses EquipmentAttorney Market research

Tax ExpensesYou 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

Shared ExpensesThings 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

Business Use of VehicleTwo methods:

1. Actual expense. Keep mileage log and all receipts.

2. Standard mileage expense. Keep mileage log.

Commuting miles not deductible. 2010 standard mileage deduction 50 cents/every business mile.

Record-Keeping TipsRemember, 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

Community ResourcesBIG Austin 928-8010PeopleFund 472-8087ACCION Texas 866-312-3771SBDC 210-458-2020City of Austin Small Business Center 974-

7800SBA 210-403-5900LAMP of TRLA 374-2700

QUESTIONS?