YourBiz Financial Services, Inc.

By Tara Stelluti

When it comes to taking deductions, most business owners are pretty well versed in the expenses that the IRS considers “ordinary and necessary” for business.  There are specific rules, for instance, on writing off vehicle costs, equipment, inventory, home offices, professional accountant and legal fees, etc.

However, not every business expense falls neatly into one of these categories.  A growing number of business owners are turning to professionals outside of accounting or law for advice on everything from mediating partner disputes to boosting workplace productivity.  Some health-conscious bosses are providing gym memberships and healthy snacks for the employees.  Others are giving employees additional vacation days.

So, how do you determine whether those expenses, especially those that yield a personal benefit, are allowable deductions?  If court rulings and IRS pronouncements don’t offer much guidance, than it is time for what the pros refer to as the “laugh test”.  Can you write-off an expense without snickering about pulling one over on the IRS?  A good rule of thumb….if there is a question in your mind, then it is probably not deductible.

Here are some not-quite-textbook expenses, and how tax experts view them:

Snacks, Food, Beverages and other office/kitchen supplies.  Whether they are healthy or not, small bites or drinks that you supply your employees for free counts as a deductible expense.  But, be careful not to be too generous, the IRS might view meals as compensation.

Trips to the gym.  Sorry, but even if those daily workouts make you more physically fit to run your company you cannot write off those health-club costs.  However, a business owner can deduct the cost of installing an athletic facility for its employees.

Clothing.  Uniforms for owners or employees that carry the company’s name or logo are deductible as a business expense.  However, if the clothing is “adaptable to street use” you cannot take the deduction.  This mainly says, you cannot expense a $300 suit, but the logo t-shirt that you wear is deductible.

Classes, workshops and conferences.  Tuition, books and related educational expenses are deductible as long as they are directly related to your business.

Meals.  For wining and dining to be considered deductible, the primary purpose must be business and someone else (such as clients/customers) must be present.  You can deduct 50% of the meal’s cost as business entertainment expense.

Home-Office Deductions: The right way to figure them out

By Tara Stelluti

Self-employed people have two major hurdles to clear to get their deductions.  The first is straightforward: You must regularly use the space you want to deduct for business.  Regularly, to the IRS, means often as opposed to occasionally.  More importantly, exclusively means exclusively.  You can have absolutely no person use of the space during the year (or at least none that you admit to).  If the IRS can prove that you so much as use your desk to balance your checkbook your deductions are obsolete.

The second hurdle is much harder than the first.  The good news…there are ways to get around it.  The first way is if your home office is your principal place of business, meaning that you do the majority of the work that earns your income there.  This is no problem for writers or accountants.

Your home office also qualifies as your principal place of business (meaning it is deductible) if you use it for management and/or administrative activities – provided that you don’t use some other fixed location to do these chores as well.  This rule saves the day for independent sales people, construction contractors, plumbers, veterinarians, computer consultants, etc.  who make their income outside the home but do their paperwork at home.

The third exemption applies if you the office to meet with your clients.  Even if you do most of your work elsewhere, as long as you use your home office space for meetings, it’s deductible.

If none of the above allows you to qualify – there is still hope!  If your office is in a building that is separate from your home, it qualifies.  So, if you set up your office in a detached apartment or garage you can get a big tax break. 

Remember, in all of these scenarios you MUST use your home office exclusively for business and you must do so regularly. 

What is the deduction worth?

Let us assume that you pass all of the above tests.  Now you need to calculate all of your write-offs.  The rules are like this:

1. Deduct 100% of expenses that are directly related to the home-office space (for example; painting, cleaning, telephone lines and utilities, and the premium for a home-office on your homeowner’s policy)
2. These include items such as: mortgage interest, property taxes, association fees, rent (if you don’t own your home), security monitoring, garbage pickup, general maintenance and repairs, insurance and so forth.
3. Also, bathroom square footage counts as most states require a business to have one accessible.

One limitation to home-office deductions is that they cannot be used to put you in the red.  That does not mean the deductions are wasted, however.  Any amount of your deductions that puts you below the break-even point gets carried over to the following year.  This limitation does not apply to mortgage interest and property taxes, which are generally fully deductible.

Want to boost sales in this economy?  Here are 5 Innovative ways to do so……

Even though things are looking pretty dreary in the U.S. economy today, it does not mean that it is impossible for businesses to generate new sales – and profits.

Indeed, downturns can serve as an ideal time for businesses to try unconventional and innovative ways to boost their sales. 

The strategies used by some of the more successful entrepreneurs are:

Lesson One: Use the Internet to further your reach

Post your products/services on websites that cater to your average clientele.  For that matter, post it on some that go outside of your normal customer base in hopes of generating new sales/leads.  This will allow you to expand your business to a much larger geographical region than the 50 mile radius around your business.   Also, adding a multilingual component to your website can help boost your sales. 

Lesson Two: Tap Underserved Markets

One largely ignored market opportunity is “the bottom of the pyramid”.  In economic circles, this term, is commonly used to describe the poorest and largest socioeconomic groups.   This group can benefit largely in efficient and affordable ways to improve their standard of living.

Lesson Three: Expand without Expanding your Costs

Examine the opportunity to take your business mobile instead of expanding rented/leased space.  You can accomplish this through shipping, personal visits to clients, or mobilizing part of your business (for example; a mobile down-sized version of your existing office/restaurant etc.)  People will pay slightly higher prices for added convience….carpe diem!

Lesson Four: Become your Customer’s Customer

Good business is all about relationships.  Supporting your clients’ businesses is one of the easiest ways to build relationships, generate customer loyalty and referral business.  Join your local Chamber, go to networking events, and support your local community.  These efforts will be rewarded back to you tenfold.

Lesson Five:  Profit from your Own Expertise

No one knows your business like you do.  So, why not use your knowledge to sell your expertise.  In addition, this usually means that you can save on start-up and/or maintenance costs of your business because you “know the ropes”.    Make sure that you market your expertise affordably, to the appropriate audiences, and often to ensure continued growth in your business.

Get Back to Business Planning Fundamentals…tough times require it!

By Tara Stelluti

Happy New Year!  Yes, I know we are all hoping and praying that it indeed will be a good new year.  The current state of the U.S. economy (and world economy) is one of the top five worries of Americans today.  Those especially nervous are the small business owners.  How can we (the small business owners) make it if the big guys can’t?  Well, unlike the huge corporate ships that cannot turn on a dime, small business owners can and the way they should do it is by getting back to the basic fundamentals. 

The first fundamental is planning, which essentially means you will watch things more closely.  It is time to watch where you spend your advertising dollars, your other variable expenses, your internet traffic, your cash flow and your customer satisfaction. 

Look for built-in indicators as to how you are doing.  It’s your business; you should know what those indicators are.  Think about what drives your sales – your expenses – and how you can get early warning signals that things are going to change.  For some it is as easy as the competition going bankrupt or raising their prices.  For others it’s internet traffic or e-mail response rates.  Don’t wait for the results to play all the way through your business model – look for them early!

One of the first things to do when things get tough is tighten/shorten the planning cycle.  Review your progress more often than usual in order to quickly respond to market changes that may affect you.  Think of it as micro-managing the details – looking at things weekly instead of monthly or quarterly.  If ever there was a time for careful planning, it is now!

The second fundamental is watching your cash flow drivers.  Keep a very close eye on your burn rate (expenditures) vs. revenue.  Keep your cash as long as possible.  If your bills are not due for 30 days, don’t pay them early!  Also, ensure that your customers pay on the same 30 day, or shorter, cycle in order for you to keep positive cash flow.  If your revenue goes down, you can maintain your burn rate for a while, sacrificing your profitability; but you cannot let revenues stay under the burn rate for very long without losing capital and, if the problem continues, going under.

The third fundamental, and probably most important, is people.  Don’t make the mistake of laying off people too soon.  No matter how carefully you follow your plan, layoffs may seem necessary, but remember that recessions/depression end.   Good people are hard to find – especially those you trust and who know your business.

Tara Stelluti is the Founder and President of YourBiz Financial Services, Inc.  Tara has over 15 years of experience as a Financial and Computer Systems Auditor for Fortune 500 companies as well as accounting services for small, start-up and non-profit companies.  In addition, Tara is a Certified Quickbooks ProAdvisor who can implement and train you/your team on efficient ways to use Quickbooks.  YourBiz Financial Services, Inc. focuses on helping start-up, small and medium businesses with developing and maintaining their financial success.