Last week, Nicole D. Feldman, CPA shared the evening with us answering tax questions posed by our members. Nicole has been in the business for 23 years and on her own for the past 13 years, so she herself understands what it is to be an independent business owner. She specializes in getting the maximum deductions for her clients without flagging items that may lead to being audited. When we reached out to our members to see if they had hot topics they’d like to be answered, they were a variety of questions that even seasoned business owner would be stumped. We have a few highlights from that chat here!
CIRCULAR 230 DISCLOSURE: Pursuant to Regulations Governing Practice Before the Internal Revenue Service, unless expressly stated otherwise, any tax advice, including links, contained herein is not intended or written to be used and cannot be used by a taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.
Q: Any recommendations for small businesses on how to keep tax files organizes to make it easier at the end of the year? It can be so overwhelming at times.
A: Feldman strongly recommends Quickbooks or Mint. With Quickbooks it gives you a general list of expenses to work off. (Sharon and KC have both tried out Shoeboxed, a company where you can mail your receipts and they will digitize them for you. It may be worth it to you to try this out.)
Another suggestion from Feldman is to keep file folders of vendors to add to Excel sheets.
Q: Could you talk about working out of your home deductions for people who pay rent too. I was told by a tax person that claiming part of your rent for your home office was something they often audit): What, if any, tax exemptions would a person who works out of their home but does not pay rent qualify for?
A: Make sure to claim your home office deduction. This is the portion of home expenses (rent, utilities, cleaning person, HOAs, property taxes, etc.) should NEVER be over 40%.
Also, items directly related to office expenses are 100% deductible: like DSL or furniture.
Pretty much everything can be written off! Books, CDs, DVDs, car... Wardrobe is not deductible unless it is a uniform. Dry cleaning anything you wear to work is deductible.
Q: What is the basic difference between claiming your small business a business vs. a hobby? How many years are you allowed to have a profit loss as a new business or hobby business? Are there any alternatives to consider when dealing with these issues?
A: After you show a loss (on schedule C) for three years the government can deem you a “hobby.” This basically means you can exist at a loss but you can not deduct the loss from your taxes. You can choose to pursue a business still by deducting less and posting a profit. You can go back and forth from a hobby to a business. You don't need to declare anything different the government cares simply about you making a profit or not.
Q: What do you do about sales tax?
A: The best thing to do about sales tax you collect is to put it aside/ away. This is the best way to know you'll have what you need come tax time. If you are shipping out of state and do not have a license in another state charge CA tax to be safe. Basically charge Los Angeles or home base of sellings tax. You should pay quarterly and must pay at least once a year if not quarterly.
We are so thankful to Nicole for sharing her knowledge with our members. This event was an exclusive for members to ask questions of a tax professional. Make sure you are able to get in on great member benefits like this by becoming a member today!
Members, access the full tax chat through our archive of hangouts in the members forum here.
