Wednesday, February 21, 2007

Small Business Bookkeeping and the IRS

Whether you are a sole proprietor or a Limited Liability Company you are required to report all income and pay taxes on that income.

Your saving grace is your bookkeeping. Why you say?

Each of the above is asked to attach a Schedule C to their personal income taxes in order to show profit or loss from operating a business. This form believe it or not can help you become organized in your company records and help make important purchasing decisions.

Tell me, Cathy, how? On the Schedule C you are required to post all of your gross income, which if that is all you had done all year is collect fees and not had one expense or cost of goods sold you would have to pay taxes on all of that.

But here is the saving grace. Business expenses incurred that are deductible lowers the amount of tax due. Thank goodness huh?

For instance we'll take line 8 on the Schedule C which is advertising. Hmmmmm advertising? What all does that cover? What is deductible? Is placing a banner on a friend's website going to reduce my taxes? Well yes a banner is deductible! In addition if you pay someone to design, update, write and host a web site for your business, these costs are also deductible as advertising. Paying someone to proof read an advertisement is also deductible on line 8 therefore decreasing your tax due.

But did you know that postage for shipping out your flyers, post cards, and other advertisements are not added to line 8 advertising but is reported on line 48 other expenses.

Yep there other instances of advertising deductions you may not have thought of. That is why it is so important to maintain your company's books correctly or to have a good bookkeeper keep those transactions straight for you.

During tax season is not a good time to discover that you owe more tax than your business can afford to pay. At the beginning of the year as it is now is the perfect time to set your books up properly or look for that bookkeeper that can offer you assistance in an area that might not be familiar to you and show you the deductions you could be missing in order to lower your taxes.

The IRS will be looking more closely at small businesses than usual as stated here: http://www.contracostatimes.com/mld/cctimes/business/16265628.htm

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posted by The Office Grapevine at 1:09 AM  

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