The Entrepreneur's Guide To Tax Season (Part 2) - Studio DIY

The Entrepreneur’s Guide To Tax Season (Part 2)

2/12/2018

The Entrepreneur's Guide to Tax Season

We really dug into the nitty gritty of your questions in part one of our Entrepreneur’s Guide to Tax Season series. Today, I wanted to break down a couple of the topics a little further, and share with you guys what WE do and what we’ve learned. I think it’s always helpful to hear what the experts say and then hear how a person applies it in real life.

If you haven’t yet checked out TurboTax Live, you’ll notice that a lot of the points I make below will direct you back to tax experts for the final details, which you can talk to directly on their platform with one-way video calls. Once we started taking advantage of tax experts, our whole business changed for the better. We realized deductions we had been missing, ways to classify our business to save in (HUGE!) ways on our taxes and tools for keeping ourselves organized throughout the year so tax season didn’t leave us eating cookies in the corner crying. Take a look below at some of the biggest lessons we’ve learned from!

The Entrepreneur's Guide to Tax Season

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Monthly Itemizing of Your Expenses

As your business grows, your expenses likely will too and I totally get that it gets overwhelming. The BEST way to avoid becoming overwhelmed is to regularly track and itemize your expenses. Pick a day of the month, ours is usually during the first couple days, to go through the previous month’s expense and categorize them. This way, those expenses are still fresh in your memory, unlike if you did so at the end of each quarter or year and had to start digging deep in your brain to remember what they are.

What we don’t currently do but now will be doing… attaching receipts to those expenses! Whether you collect them and do this on the same day of the month or do it continuously throughout, QuickBooks Self-Employed allows you to attach receipts to your expenses. That way, should you ever need documentation, it’s already there.

Pro tip: If you’re an entrepreneur filing with TurboTax Self-Employed, QuickBooks Self-Employed is included for year-round income, expense, mileage tracking and receipt capture to make next year’s taxes simple. TheTurboTax Self-Employed product also helps you automatically find industry-specific business deductions and expenses. If you find yourself needing extra help you can add TurboTax Live, which connects you live via one-way video to a CPA or EA to get one-on-one tax advice.  The TurboTax Live CPA or Enrolled Agent  can review, sign and even file for you.

Tracking Your Mileage

I’m not going to lie, tracking mileage is something I do not do well, which means I’m not taking full advantage of this deduction. Don’t follow my lead! Here’s two options for you (us, really. Ha!) to track it on a regular basis: First, simple and old fashioned… a paper notebook or note in your phone. Any time you get in your car for a business-related trip or errand, jot down the mileage before and after. This way you have a concise, accurate record immediately and you can move it onto your computer later!  Also, write down the business purpose.  For instance, if you are traveling for a business meeting or seminar.

Even easier, if you’re an app person, use the QuickBooks Self-Employed App’s Mileage Tracking feature. This will automatically track and log your mileage based on your GPS and then you can indicate which trips were for business and it’s automatically added into your bookkeeping software, eliminating the extra step of having to transfer that info into another platform. BAM! And, you can easily import this data to TurboTax making tax time a little more simple.

Beware of Deductions When Buying A Home

Since I have recent experience with this, I wanted to dive deeper into what our TurboTax Live tax expert said. The year you’re trying to get approved for a mortgage and buy a home, and the year before, you might want to treat your business deductions a little differently. Typically, we try to deduct every business expense we can, to lessen our tax burden. But when we were trying to get approved for our mortgage, we knew the larger the income we were able to show, the better loan we’d get approved for. So leading up to that time in our lives, we omitted some of our expenses so that it didn’t skew our income lower than we wanted it to be.

It’s tough, because your tax bill inches up that year and that’s scary, but in the long run it was worth it to be able to make the home investment we wanted and needed for our family. Definitely consider planning to take less business tax deductions when the time comes!

Taking Advantage of Home Office Expenses

Now owning a home with an additional room for a home office, we’re able to count some of our home renovation and repair expenses as business deductions. First step in doing this is measuring out the square footage of our business-dedicated space. Then determine what percentage that it is of your total square footage. Renovation expenses for the portion you will use strictly for business can be deducted based on the percentage of space used for your home office. So if you replace your floors (raises hand), air conditioning (raises hand), roof (raises hand), anything that affects that home office space counts.  Also, If you use part of your home regularly for your business, you can claim a home office deduction for utilities, rent, mortgage interest, depreciation, cleaning and the like based on the square footage of your home used for your business.

In addition, any furniture or equipment you buy to outfit your home office can be written off. That means computers, furniture, decor and more! If it goes in the office for business-use and stays there, it counts!

Being Treated as an S-Corp

Declaring our business an LLC treated as an S-Corp was the biggest game changer for our business and I only wish someone had told me about it sooner. It helped reduce our tax burden immensely. It does get a bit complex to explain, but essentially instead of incurring self-employment tax on ALL the income your business brings in, you only incur it on the reasonable salary you give yourself. Studio DIY makes a LOT more than I actually pay myself so it makes a really big difference as your business starts to grow. It’s not right for everyone or every business but I cannot stress enough how much I encourage you to talk to your TurboTax Live tax expert about your options there.

Understanding the Adoption Tax Credit

This one is less about entrepreneurs, but I’m throwing it in here because it’s a big part of our life right now and something that can be confusing. The IRS grants every adoptive family an adoption tax credit per child to help offset how expensive it is. Depending on the type of your adoption, and how your expenses are spread out, WHEN you can claim the credit varies. For us, since our expenses are spread out over three years, but our adoption still isn’t finalized, we’ll be able to take the credit for the expenses we incurred in 2016 on our 2017 return. We’ll be able to claim the remainder of the credit in the tax year following the year of finalization, which for us will (hopefully) be 2019. It does work differently for international adoption and special needs adoptions so be sure to talk with a tax expert to understand how and when you can claim your credit.

The Entrepreneur's Guide to Tax Season

Photos by Jeff Mindell

I’m so glad you all have enjoyed this series. Businesses finances and taxes are one of those topics that can be scary and not often talked about, so I enjoyed sharing what I’ve learned, and learned a lot more myself in this process!! ‘Tis the season so be sure to pop over to TurboTax Live and get a head start!!

This post was created in partnership with TurboTax. All content and opinions are that of my own! Thank you for supporting the sponsors that keep the Studio DIY party going! Read more about my editorial policies here.

This is a sponsored conversation written by me on behalf of TurboTax. The opinions and text are all mine.

2 comments

  • Lauree

    Regarding taxes, were you able to use any of the IVF costs from previous years as a deduction?

  • Indya

    I’m not sure if this is a personal question or not, but is there a reason adoptions take so long to finalise? And what does it mean when it’s not finalised, but you already have the child in question? It all sounds so scary! I hope Arlo’s adoption is finalised soon so you don’t have to worry about it.

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