Top 20 Things Every Business Owner Needs to Know

Admin Books out of Morgan Hill, California had a great list of Top 20 Things Every Business Owner Needs to Know, which I share below:

1. Receipts: You are required to have a receipt for every expense. It must be readable. It can be the original or a copy of the original. Copies of a credit card statement with the expense listed is NOT acceptable. 2. Auto Miles: You are required to keep a mileage log. This includes the date, starting odometer reading, ending odometer reading and business purpose. You are allowed to recreate the log using your calendar and receipts. 3. Meals and Entertainment: These two categories are highly scrutinized. You need to track who you had the meal with/entertainment with and the business purpose. You are required to have a quiet business conversation before, during or after the event. 4. Home Office: You can deduct expenses related to an area in your home that you use for business. This specific square footage area can ONLY be used for business, no personal use. It must also be regularly used for business. 5. Officers: ALL Officers are required to be paid via a W-2. If there are no wages processed for the year, you are not fulfilling the corporation requirement. No wage amount is “red flag” to the IRS. 6. Bad Debt: If you file your return on an accrual basis and find that any invoice goes unpaid by your client/customer, you can write off that amount on your return by calling it “bad debt” because you paid taxes on that income in a previous year. If you file your return on a cash basis, there is never any bad debt to expense because you never paid taxes on the income. The amount is non-deductible, like a suspense account to close out the accounts receivable. 7. Credit Cards: Make sure you enter ALL expenses thru the end of the year. Most credit card statements cut off in the middle of the month and many people forget to enter expenses the last few weeks of December. 8. 1099’s: You are required to send out 1099-MISC forms to anyone you paid more than $600 in a calendar year for services. If you do not, you can be penalized for each 1099 not completed. 9. Reconciling bank and credit card accounts: Make sure you reconcile the entire year for every bank and credit card account you have for business. Then, once you reconcile, make sure there are not any un-cleared transactions. If you do have these un-cleared transactions, you will be either overstating your income (and paying higher taxes) or overstating your expenses (and underpaying taxes). Double and triple check this! 10.Gifts: Gifts are deductible up to $25 per person in a calendar year. Any amounts paid over this amount is considered not deductible. The only exception is any gifts given to a business (not individual) that is a corporation. 11.Assets: When you purchase larger items for business, you are required to depreciate them over a period of years. For example, if you purchase a computer for $1200, you need to show this asset on your balance sheet. However, if you purchase a printer, say for $129, it is typical to expense it all in one year. 12.Corporate Minutes: As a corporation, you are required to have annual corporate minutes. You need two documents: Minutes of Shareholders and minutes of Board of Directors. If you do not have these annual documents and are in a legal battle, the other party can “pierce the corporate veil” and your personal assets can be at risk. 13.Loans to Owners: If you loan money to your business, you are required to have a promissory note, schedule of repaying and if the loan is over $10,000, the business must pay interest on the loan. 14.QuickBooks Files: If you track your income and expenses in QuickBooks, make a copy of your file annually. The IRS is now asking for copies of the QuickBooks files. If you have a back up, you can condense the previous year and not have any data for the years after the year to be audited. 15.Life Insurance: Life insurance can be deductible to the business and non-taxable to the employee for any amount $50,000 or less. Any premiums over $50,000 is taxable to the employee. 16.Auto Use: The IRS allows you to take the higher of two deductions when it comes to your auto. You can deduct the business miles driven at the IRS rate for that year OR you can deduct actual costs, like gas, repairs, insurance, and the amount allowed for depreciation. What most business owners miss is the percentage of business use. Usually the percentage is less than 100%. Each owner needs to determine the business percentage for the year. 17.Hiring Independent Contractors: The IRS has 20 factors to determine if a worker is an independent contractor or an employee. You need to know these factors and make sure if you are paying someone a straight check that, if audited, the IRS will not deem them as an employee. If they feel the person hired is an employee, there are high penalties and interest. 18.100% Deductible Meals: We know that when a meal is purchased, it is 50% deductible, however, there are several situations when meals are 100% deductible. • If you distribute food to the general public to advertise or create good will • Require employees to work overtime on the employer’s premises • Company picnics or annual Christmas parties • Coffee, soft drinks or water on the employer’s premises 19.Non-deductible Entertainment Expenses: The following are NOT deductible: country club dues, golf or athletic club dues, skybox or luxury boxes, hunting lodge or yachts. 20.Paying Children in Sole Proprietorship: If you file a schedule C return, you can pay your children wages under the age of 18. There is no FICA or FUTA taxes paid on these wages. The work must be reasonable and age-appropriate. Great deduction for the business and nice earnings to help pay for personal expenses. For more info: Admin Books, Inc. 125 Lindo Lane, Morgan Hill, CA 95037 P: 408.782.9640 | F: 888.459.1117