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Business expenses are the cost of carrying on a trade or business, and there may be some tax breaks there. But a lot has changed in recent months, and the rules can be complicated.
Are there business deductions you can take advantage of? Yes, but first you have to make sure your expenses are truly business-related. The lines can blur, especially with a small business, because you generally cannot deduct personal, living or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts, and then deduct the business part.
An example: You borrow money and use 70% of it for business and the other 30% for a family vacation. You can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and isn’t deductible.
Let’s look at business use of your car and your home:
- Business use of your car: If you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.
- Business use of your home: If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses include mortgage interest, insurance, utilities, repairs and depreciation.
Other types of business expenses? Let’s take a closer look:
- Employees’ pay: You can generally deduct the pay you give your employees for the services they perform for your business.
Retirement plans: These are savings plans that offer you tax advantages to set aside money for your own, and your employees’, retirements.
- Rent expense: Rent is any amount you pay for the use of property you don’t own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. If you have or will receive equity in or title to the property, the rent is not deductible.
- Interest: Business interest expense is an amount charged for the use of money you borrowed for business activities.
Taxes: You can deduct various federal, state, local and foreign taxes directly attributable to your trade or business as business expenses.
- Insurance: Generally, you can deduct the ordinary and necessary cost of insurance as a business expense, if it is for your trade, business or profession.
This list is not inclusive but endeavors to offer some common business expenses and explains what is and isn’t deductible. Of course, in some cases, expenses might need to be amortized — deducted over a period of several years — if they are startup costs or if they’re related to the purchase of business equipment.
You must capitalize, rather than deduct, some costs that are part of your investment in your business — these are called capital expenses. Capital expenses are considered assets in your business.
Of course, some business deductions can be very complex, so professional advice is necessary to make sure you’re getting what you’re owed without raising any red flags with the IRS. We’re here to help you with your business tax needs.
Note: we recorded this podcast in early April, just after the opening of the Paycheck Protection Program and the passage of the CARES Act, so you may hear references to dates that have already come and gone. As of this writing, though, we’re still following the roll out of the second round of the PPP, continued disbursement of EIDL loans and economic impact payments, and like everyone else, trying to be as prepared as we can for what comes next.
Most of the economic news these days is not great: high unemployment, a drop in GDP that brought the US economy’s longest period of expansion to a screeching halt, and of course, the neverending ups and downs of the stock market. Though media sources have already started reporting on “the coronavirus recession” and we’re all feeling the effects of business closures and supply chain disruptions, we’re not technically in a recession. The reason comes down to how we measure economic performance. On today’s episode, we’ll be talking about economic indicators, what a recession is, and why official definitions don’t always match up with our lived experience. We’ll also be discussing some ways to weather an economic downturn, recession declaration or no. We can’t promise to alleviate any concerns you may have about the economy or tell you what to expect in the coming months or years, but we’ll try to provide some actions that you can take in the present.
Check under the cut for show notes and bonus content:
As the effects of COVID-19 become our new reality, businesses that haven’t traditionally embraced remote employees, may find it difficult to keep their operations moving. To make the transition less overwhelming, we assembled a handy checklist of actions to consider while adjusting to the new workplace reality.
- Access your staff members and/or roles that are able to work remotely, those that can’t work remotely, and those where remote work may be possible with some modifications.
- Conduct an employee survey to determine the availability of computers that can be used for working remotely, as well as availability to high-speed internet access.
- Create company guidelines covering remote employees, including inappropriate use of company assets and security guidelines.
- Develop and conduct work-at-home- training for using remote access, remote tools, and best practices.
- Develop a communications plan to involve remote employees in the daily activities of the organization.
- Create and implement a company security policy that applies to remote employees, including actions such as locking computers when not in use.
- Implement two-factor authentication for highly-sensitive portals.
- If needed, confirm all remote employees have access to and can use a business-grade VPN, and that you have enough licenses for all employees working remotely.
- Institute a transparency policy with your staff and communicate frequently.
- Check-in on your staff, daily if possible, to confirm they are comfortable with working from home. Find and address any problems they may be experiencing.
- Make certain each staff member has reliable voice communications, even if this results in adding a business-quality voice over IP service.
- Don’t attempt to micro-manage your staff. Remember their working conditions at home won’t be ideal, and they will need to work out their own work patterns and schedules.
- Create a phone number and email address where staff members can communicate their concerns about the firm, working at home, or even the status of COVID-19.
- Ensure that you have ample bandwidth coming into your company to handle all of the new remote traffic.
- Make sure you have backups of your services so your staff is able to keep working in the event extra traffic causes your primary service to go down.
You may need to adjust or expand this list to match the specific needs of your firm and the conditions affecting your organization. Use this list to get you started and to help guide you through the process.
I have two Dropbox accounts. One is associated with my current email and the other with an old one (from a job I had years ago). Apparently that old address is tied to my paid Dropbox account, but I can’t get it to sync with my phone, nor can I log into dropbox.com with it … because since I can no longer access that email address, I can’t do a password reset.
This is the kind of task that drains me. I’ve scoured the Dropbox support site; I’ve emailed them and gotten a rather long and seemingly convoluted response about how to fix this.
This is also a good example of the kind of thing I would absolutely, positively love to hand off to a virtual assistant
Almost every entrepreneur or businessperson I know has considered hiring a virtual assistant (aka VA). But a lot of us haven’t quite taken the plunge, for reasons either financial or because we’re not quite sure exactly what we’d have that person do.
But according to Ardenia Gould, business expert on working remotely, if you’re even considering doing it, you should. “I took the plunge early last year,” said Gould, “and it was the scariest but best business decision I ever made.”
Here are 7 signs you need a virtual assistant:
1. Your business is holding you hostage
You’re vacation-deprived. You need more time off but you’re reluctant to take it. As an entrepreneur, you love the idea of setting your own hours and calling the shots. But if you can never find the time to step away from your business, it’s time to call in reinforcements.
2. Your business needs skills you don’t have
“I needed serious help with business taxes, securing business loans, and taking on a major renovation project so I could host retreats,” said Gould. “I’m not a tax expert, I knew NOTHING about business loans, and I’m certainly not a general contractor.”
The solution? She hired a virtual assistant who had a background in real estate, underwriting, project management and bookkeeping–and she’s never looked back.
3. You wish there were two of you
I run a podcast called Dear Men, on sex, dating, and relationships. I love interviewing guests, but I don’t love sourcing guests, (researching people who would be a good fit), and I hate dealing with scheduling. This means I put that stuff off, which in turn means my editorial calendar is often running behind.
When growing your business (or trying to), it often seems like there aren’t enough hours in the day. This is a good sign that it’s time to get a VA.
4. You spend more time on administrative tasks than the core business itself
It’s hard to add value to the bottom line when huge chunks of your day are spent invoicing, billing, e-mailing, booking, etc. Admin tasks are necessary, but often distract you from adding your highest value by doing what you do best.
Plus, they tend to drain your energy (like me with Dropbox). So not only are you getting less done, but you actually feel worse than when you started.
5. Your business is a hot mess
You’re finding yourself missing deadlines or meetings (or things on your calendar go MIA). You’re not hitting your goals–or maybe you didn’t even have time to set goals because you’ve been so busy putting out fires. There’s no room to be strategic when you’re in a constant state of overwhelm.
6. You’re ready to scale
When it’s time to scale, you typically need three things: systems, cash and people. When it comes to people, you should start with the most critical role that will help you scale. For example, if you’re launching a membership site, you may need a part-time VA to handle sales and conversion. Or you may need someone to handle member support and customer service for new members. Determine your most essential role(s) and start there.
7. You’re big on vision but short on execution
You’re a visionary. You’ve got a ton of great ideas. You’re going to revolutionize the game. But first, you’ve gotta get it done.If you’re great at big-picture thinking but get bogged down in the details (or avoid them altogether), a VA will help you thrive.
When you’re ready to hire, here are a few smart ways to find the right virtual assistant:
Referral from someone you know and trust (that’s how Gould found hers). Just post to LinkedIn and/or Facebook that you’re looking for a good VA and follow the leads
Niche placement agencies like HireMyMom.com, which staffs experienced, highly-qualified work-from-home moms
Freelancer platform Upwork. Conveniently, Upwork itself tracks your VA’s hours, screenshots what your VA is doing, and manages the payment processing, which can streamline things
If you don’t want to spend the time to hire your own VA, you can use Leverage, a company specializing in hiring virtual assistants. This can be pricier but easier
According to Gould, hiring her virtual business manager was a life-changing decision. “My sanity–my mental, physical and emotional well being have drastically improved since I lightened my load. I can take real vacations, knowing things are actually being handled in my absence.”
She has also managed to put more money in her pocket, since her VA has tightened up her invoicing so she gets paid sooner (no more chasing down clients for payment). And she estimates that her VA has saved her tens of thousands on taxes, subscription services, canceled flights, late fees and by negotiating excellent rates with vendors on her behalf.
You don’t have to do it all yourself. There are financial, emotional, and spiritual benefits to getting a little help.