Helpful Tax Tips - PURE ROMANCE MINNESOTA



Helpful Tax & Bookkeeping TipsIf you have a separate checking account system for your business, then it can be very easy to keep your records of all income and expenses. Allow your checkbook to do the bookkeeping for you. (I.e.: All income into checking account, all expenses out.) In order to do this though; you must be true to your checkbook. This will allow you the opportunity to put your receipts for your purchases in a file or shoebox and not have to separate them at the end of the year. The expense type can be determined at the end of the year by going through your duplicate checks and separating them into piles or keeping the log in your register and marking it accordingly when you enter the expense in your register. If an expense is paid out of your pocket from your personal account or by cash, then you can write yourself a check for reimbursement provided you state in the memo what the expense was for. The deposits to your checkbook will determine your income. (Plus the credit cards you hold through the company.) Auto Expenses – Assuming you keep a calendar of events and parties, you can keep your mileage in the same place. The IRS no longer requires an odometer reading kept in a separate journal. You can just write your mileage next to the event, preferably in red ink and circled so not to confuse it with a telephone number etc. and add them up at the end of each month. Also, when using your checkbook as mentioned above you can use this same method in your checkbook register by writing in the mileage from that expense. Remember mileage is tracked according to round trip. Mileage is a beneficial write off and should be kept track of for every business-related trip. Going to the bank, post office, purchasing supplies, deliveries, and going to parties. Mileage is not deductible for the first and last trip of the day. What this means is… if you go to the bank, then onto a delivery at a customer’s home, to the post office and then home; your trip from your home to the bank and from the post office to your home are NOT to be included in business mileage. The deduction for 2016 is .54 cents per mile. The rate for 2017 is .53 ? cents per mile. You do not need to calculate the dollar amount for miles, this is simply an FYI.Depreciation is taken on any item purchased for business with a useful life of 1 year or more. Depreciation splits the expense over a certain amount of years. It is possible to use a method of depreciation called Section 179, which allows you to deduct the entire expense in the purchase year. However, Section 179 can not create or increase a loss on the business return.Meals and Entertainment – You may take the cost of meals and entertainment related to your business. This expense is decreased by 50%, so the deductible amount will be cut in half on your tax return. You can take the actual expense of the meal or the per diem amount allowed by the IRS. Remember, if you are on a business trip, you must decide if you are going to take the per diem amount or actual amount for meals and keep it the same throughout that trip. For many Pure Romance trips, you can use a daily per diem meal rate for the city you traveled to. All we need is a count of days and the location to calculate it. This keeps travels simple… you do not need to keep food receipts.Contract Labor – If you contract out for any help, you must have some pertinent information in order to pay them for work completed. You must get their full name, address, and social security number. A 1099 is required to be issued to them if the amount paid to them is $600.00 or more. If you hire someone as an employee, you should check with local and state laws for specifications. Although in this business, I do not see where that is necessary.Inventory – You need to calculate YOUR COST on all remaining inventories in your stock December 31 of each year. Only inventory products that are available for resale, not demos or paper. Include in year-end inventory all orders that are on backorder also. Even though you do not physically have them in stock they are a part of your stock and you have paid for them. The purpose for this is that the IRS law states that you can only deduct your cost once the product is sold. In addition, by having this it will give you the beginning inventory for the next year. The IRS requires a beginning and ending inventory for any business holding inventory. (Also, see attached…inventory and your tax return.) Set up your own chart of accounts/ledger according to your expenses. You do not need to tailor your accounts to the tax return. You need to tailor your accounts to your business. Keep it simple with descriptions you understand. The tax return can then be completed to your needs and this will avoid confusion.Remember all expenses must have business intent. Deductibility of an expense is based upon your intent when purchased and whether it is ordinary and necessary for your business.You also may qualify for the Business Use of Home deduction. This will require you to keep track ofyour household bills. (IE: utility bills, insurance, etc.) This will also allow you to deduct a portion ofyour rent or mortgage interest and property taxes (based on square footage) against your business income. There are 3 parts of this deduction to make it a qualified deduction. Should you choose notuse all three, you will lose a benefit and it may cost you more money in the end. Please understandthis deduction or make sure if you have a preparer preparing your return that they are qualified and understand this deduction in full. There is now a standard Office In Home Deduction which allows you to take a standard rate per square footage of your office. This is beneficial if you haven’t kept track of each household expense.You can switch back and forth from year to year, depending on which deduction benefits you the most. Your 1099MISC from Pure Romance – At the end of January you will receive a 1099 from Pure Romance (possibly two). One 1099 will have box 9 checked. This shows the IRS that you made direct sales of $5,000 or more of consumer products to a buyer for resale. In short, it means you purchased more than $5,000 in retail products from Pure Romance. The second 1099 will have an amount in box 7 (non-employee compensation). This total will include overrides, bonuses (cash or prizes), website orders (commissions), trips Pure Romance paid for and Free Product. It is up to you to reconcile this 1099. You or your preparer will need to know the total of Free Product because it will need to be separately treated in order to not pay double tax on Free Product income. In addition, if you are on a Board or Committee with Pure Romance and they paid for a trip for you to attend a business function; you will need to know the value of the trip so you can deduct it as travel. Please note, trips won as a prize that are considered a vacation are not a business deduction. Pure Romance does not send out an itemized list of your 1099 income. Again, you have to reconcile it, although you may need to contact Pure Romance for more information when reconciling. Due to varying tax rates on average the taxes on your business may cost you around 40%, including social security, federal and state taxes. Although 40% is only an average, it can be more or less. This means that for every $100.00 in lost receipts, missing mileage, or other errors in record keeping, it will cost you an additional $40.00 in taxes. This can add up fast, so taking a little time at the end of each week may be helpful in your bookkeeping, rather than back tracking the entire year at the end of the year.STAY AUDIT PROOF! The IRS puts the most value in reviewing: A.) LOGS B.) CANCELLED CHECKS C.) RECEIPTS Make sure to compare your invoices and bank statements for matching income.You can always visit for additional information. AGAIN, GOOD LUCK AND REMEMBER SIMPLICITY.Cassi Bombich, E.A.Vice PresidentEnrolled Agent “Enrolled to Represent Before the IRS”TRW’s Tax Service7395 Lake DriveLino Lakes, MN 55014(651) 786-6425 tax officecassi.trwstax@IDEAS TO BEGIN YOUR LEDGER PAGES:Keeping a ledger is easy. As soon as you have a receipt for an expense, all you have to do is log it in and put the receipt in a file. This will save a lot of work and time when it comes to the end of the year and you are going through receipts trying to determine what kind of expense it is from. The same goes for income. If you log income on a ledger, you will not have to add up all customer invoices at the end of the year. Here are some expense titles to get you started. You can tailor this to YOUR way of doing business.EXPENSES:Advertising - ex. personalized pens or company clothingBusiness Supplies – ex. spoons, paper plates, decorationsCredit Card Processing FeesEquipment – itemize the list and include product, date purchased and purchase price.Finance Charges - for credit cards that are 100% business useGifts – not PR hostess gifts or PR productsHostess Credits – only if included in as income first, see belowInsurance - business coverage onlyMeals/Entertainment – for per diem a count of days (including travel days) and locationOffice Supplies – ex. paper, ink, pensPostage/Shipping – to customersPrinting Publications/SubscriptionsRental fees – storage if required; for software that is leased or licensed (subscription type)Repairs/MaintenanceSales Tax on Free ProductSoftware – include purchase date, off the shelf software Travel – ex. airfare and hotelUtilities - 100% business Utilities – (cell phone, internet, etc.) and the business % of use.Website feesHOSTESS CREDITS:Keep track of hostess credits given (i.e. 10% of party sales)Gift certificates – If given by you (consultant) then keep track of them when used.If purchased as a gift for someone, keep track of amount collected as income; deduct from income when redeemed.PRODUCT PURCHASING:Cost of ProductShippingSales taxTotalINCOME: (per party is simplest and WITHOUT deducting hostess credits)Product Sold (subtotals)TaxShippingTotal Party **Mileage can be tracked within your ledger pages and your calendar or in a separate log.Cassi Bombich, E.A.Vice PresidentEnrolled Agent “Enrolled to Represent Before the IRS”TRW’s Tax Service7395 Lake DriveLino Lakes, MN 55014(651) 786-6425 tax officecassi.trwstax@INVENTORY & YOUR TAX RETURN:Here is an example of how the inventory part of your tax return will look. These are only the lines that pertain to the Pure Romance Business.35. Inventory at the beginning of the year:$_________0_________36. Purchases (less personal)$_______15,500_____40. Add line 35 & 36$_______15,500_____41. Inventory at the end of the year$________2,700_____42. Cost of Goods Sold (subtract 41 from 40)$_______12,800_____ “THE MIDDLE”Line 36 will be the total of ALL invoices from Pure Romance for the year, including paper items, promo items, etc. At the end of the year you will add up YOUR COST ONLY on “INVENTORY FOR RESALE”. The paper, promo items, etc will be deducted through inventory because you will not count them since they are not for resale. Line 42 ”THE MIDDLE” will be deducted from your income as an expense.Here is what your tax return will look the following year:35. Inventory at the beginning of the year:$_________2,700____36. Purchases (less personal)$_______27,500_____40. Add line 35 & 36$_______30,200_____41. Inventory at the end of the year$________1,500_____42. Cost of Goods Sold (subtract 41 from 40)$_______28,700_____ “THE MIDDLE”This just shows you how your beginning and ending inventory relate to each other from year to year.Cassi Bombich, E.A.Vice PresidentEnrolled Agent “Enrolled to Represent Before the IRS”TRW’s Tax Service7395 Lake DriveLino Lakes, MN 55014(651) 786-6425 tax officecassi.trwstax@ ................
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