What You Don’t Know About Your Break-Even Point Will Kill Your Business

There used to be a really good joke about if you’re in the 25% tax bracket you work for uncle sam until at least April. From then on the money you make is yours to keep. Ok, maybe it wasn’t a really good joke. Understanding your break-even point is exactly the same thing. Let’s say your break-even point is $20,000 per month. If it’s January 10^th and you’ve already made $20,000 you’ve already covered your expenses and the rest of the money you make that month is PROFIT.

Don’t you want to know when you start making a profit?

Number 1 of the 7 Simple Numbers for Small Business Success is understanding your break-even and how often you want to review it.

Your break-even point is the simplest way for a small business to find out if what they charge for their products and services will cover the actual costs.

Understanding your break-even point will help you understand the TRUE cost of doing business. In turn, this will help you price your product so you can meet your expenses.

Why You Need to Know Your Break-Even Point

Understanding your break-even point will help you understand the TRUE cost of doing business. In turn, this will help you price your product so you can meet your expenses.

Did you know that your break-even point can be used for a bunch of different things?

Evaluate a new product or project to see when you’re the money you invest can be recovered.
It can set Your Initial budget – use your break-even point to determine your budget. You’ll know immediately because you’ll be monitoring and controller your costs. You’ll be able to see where your money is going and what needs to change in order to get to your breakeven point faster.
Helps determine your pricing strategy – If you’ve set your prices to low you’ll see almost immediately that it will take you longer to get to your break-even point. If you need help determining your pricing strategy check out our (Pricing Strategy) Article

Free Break-Even Analysis Template: Get our ” Sample Break-Even Analysis” that lets you not only calculate your break-even point but the best case and worst case scenarios so you always know where you stand.

Grab the Break-Even Analysis Template Here

When and How Often You Need a Break-Even Analysis

I always advise our clients to have this calculation handy….There are a few times that make calculating your break-even point becomes necessary.

1. Starting A New Business

Starting a new business can be rough especially if you’re after funding. To make sure you know when you’re going to make a profit then start with understanding where your going to spend money and then figure out how much you’ll spend and how much you need to sell before starting. It will keep your expectations realistic and make the banks happy that you know when profit will start.

2. Creating a New Product

Want to add new inventory, creating a new coaching package or thinking about adding a new line of products? Then it’s time to create a break-even analysis to see when the new product or service will make money. This also helps focus you on the variable costs that are associated with creating and selling the product. For example, let’s say you are going to sell training to corporations and it’s going to cost additional money to create and execute a solid marketing plan. You’ll want to know when you expect to be able to pay for it.

3. Adding a New Sales Channel

Thinking about switching from drop shipping products to carrying inventory? You should make sure that you complete your analysis to make sure your pricing doesn’t need to change as well.

4. Changing Your Business Model

Thinking about switching from drop shipping products to carrying inventory? You should make sure that you complete your analysis to make sure your pricing doesn’t need to change as well.

4. Changing Your Pricing Or Reducing Costs

We live in uncertain times so you may need to look differently at the products and services. If you’ve reduced costs or if you’ve lowered or raised your prices it might be time to analyze your break-even point.

What is a Break-Even Point

The breakeven point is where the business’s total revenue is equal to its total expenses. Sounds fairly simple right? I like to know when a company breaks even for the month as well as a quarterly and annual basis. I know your asking yourself, why, it’s because that will help you figure out what you can afford next, where your money is going

and….

When you can really pay yourself what you want to pay yourself.

How to Determine Your Break-Even Point

Now that you have the break-even formula it’s time to get real with the numbers check out the formula below.

You have the formula how the heck do you get the numbers. Let’s find out….

1. Gather Up Your Data

If you have an accounting system then you should be good as long as your following the 4 Money Rules Every Small Business Owner Should know. If your finances are in a bit of a mess you might want to go to through the 4 Steps to Organizing Your Business Finances before you try to compute your break even point.

If you do have your finances together then it’s time to list out your Fixed costs.

2. Find Your Variable Costs

Let’s Find our variable costs so that we can make sure that we have the right number for our break-even.



Andrea's Tip

You can skip this if you have a service-based business unless you have direct labor. Or labor that is tied to a specific client or project. Because most service-based businesses don’t have a lot of fluctuating overhead costs.

If you’re an eCommerce seller and you produce products having the variable cost for the product is sooooo important. You check out how to find your cogs in more detail In What the Heck is Cost of Goods Sold.

Grab the Break-Even Analysis Template Here

Putting it All Together

Now that you figured out what your Break-even point is you know what you need to get to on an Annual Example. So with the below example, you need to make $101,538 annually to breakeven. According to this calculation which you can find in the Break-Even Point Spreadsheet you need an additional $1,538 to get to break-even or you can cut fixed costs of $1,000 to make it.

That’s why it is so important that you understand the breakeven and how it plays the part in your overall business plan. If you divide the Break even point by 12 you’ll be able to calculate your operating expenses that you need to make every month to break even.

Let’s get you to profit quicker.

You got this!

Andrea

The 4 Rules of Money Every Small Business Should Know

It’s been a crazy month, to begin with, and as I write this, we’ll be onboarding three clients this week. I’m excited for them and for me 😉. I have noticed that one of the common issues my clients have is that they don’t follow any rules when it comes to understanding the rules of money for small businesses.

Whenever I take over the accounting tasks for small businesses, I start by asking questions. Hopefully, if your reading this it will help you out.

**Money Rule 1: Know Where All Your Money Is**

I would say that 90% of the business owners I talk to don’t know where all their money is. Let me give you an example. Smart business owners will set up a business checking account in QuickBooks or Xero. But they leave off things like credit cards, business loans, Leasing information, etc.

Andrea’s tip: If you have a business loan the interest that you pay is tax-deductible. Make sure it’s accurately reflected in your accounting system.

List of items that should be in your accounting system:

Business Checking and Savings Account
Business Credit Cards
Any business loans
Any vehicle loans tied to your business (for business use only)
Payroll

Andrea's Tip

If you use your personal car for business use the mileage deduction and don’t add that loan to your accounting system.

Andrea's Tip

If you’re a small solopreneur you might only have a personal credit card. Try and use just 1 card for business expenses and tie it in with your accounting system. That way you know where your money is going.

Another no-no is to have business expenses tied to your personal credit card. That makes it really hard on you to track the expenses and you may lose out on deductions.

Money Rule 2: Set Aside Money for Taxes (and Other Long-Term Obligations)

If you don’t have a business savings account, you should open one soon. This way you can set aside money for things like taxes, balloon payments, and other long-term obligations that you may have. My rule of thumb on how much money you should set aside is fairly straight forward. If you a service-based organization, I suggest a portion of any sales be moved into savings account as soon as you receive payment. That way when you pay your estimated tax quarterly your covered and you don’t have to sweat it.

I have tax brackets laid out for you in the Tax Brackets for 2020. That way you can use the highest tax bracket that you fall into to set aside the money for tax payment.

Want the Profit Roadmap for Free?

Download the excel version of the profit roadmap and keep your finances in line with your goals. Review your numbers monthly, quarterly and at the end of the year so you can get clear on your business.

Bonus Content: Price your services correctly so you always know if you make a profit.

Download the Profit Roadmap

**Money Rule 3: Embrace Your Real Expenses**

My son just turned 16 and will be getting his driver’s license soon (which scares the crap out of me). He recently told me that HE wouldn’t get into an accident (You know, because he such an awesome driver). However, as I told him the statistics prove him wrong almost everyone gets into an accident as a young driver and he’s no different. Well your expenses are just like that…

Embrace it!

Inevitably you will forget about a bill, have an unexpected expense or your cash flow will be low. As I like to say it’s time to whack the mole.

Take some money from a different category pay it off,
Annotate it so it doesn’t happen again or your prepared for it.
And move on.

If you don’t know where your money is going that will be the quickest way to go out of business. If you need a little help organizing check out our 4 Steps to Organizing Your Small Business Finances.

Keep an eye on your expenses and you’ll have enough to cover those unexpected expenses.

Money Rule 4: Prepare for the Down-Cycle

Every business has downtime. As the cycle of life, it’s inevitable. As a business owner, you’ll need to prepare for seasons or years where you’re not in growth mode. Using a phrase from personal finance it’s time to pay yourself first and set aside money to handle those times when things are stressed.

For example, I have a lawn care provider. He generally works from March through October. He’ll make little to no money from November, December, January, and February. I make sure that he sets enough aside so that he can continue getting a paycheck during those months. We worked together to figure out how much he needs to set aside and we make that one of his goals for the year.

If your business has a slow time during the year make sure you know when it is so you can plan for it.

Putting it All Together

If you follow the rules of money for your small business, you’ll be at ease during times when cashflow is tight. By understanding where all your money is coming in and going out will help you build a long sustainable business that can manage the small business roller coaster.

As always if you need help and want to understand your business finances better you can always give us a call and talk to one of our amazing financial geeks. Schedule a time right here.

You’ve Got This!

Andrea

Want the Profit Roadmap for Free?

Bonus Content: Price your services correctly so you always know if you make a profit.

Download the Profit Roadmap

How to Crack the 1099-NEC Code

Don’t make costly mistakes by filing your 1099-nec late or incorrect. Find out how, when and where to send the forms.

What the Heck is Cost of Goods Sold?

It’s tough enough tracking your expenses so you can price your products. Let us help you figure out your cost of goods sold so you can keep your business on track.

No Results Found

The page you requested could not be found. Try refining your search, or use the navigation above to locate the post.

4 Steps to Organizing Your Small Business Finances Fast

Well it’s almost tax season and you know what that means. Frantic rushes to find receipts and make sure your small business financials are organized so you can file your taxes.

Wouldn’t it be great if you didn’t have to do that anymore? And let me tell you your accountant will thank you if you don’t come in with a shoebox full of receipts.

There are truly only 4 steps to organizing your small business finances to get the year started out right. That way you can have a clean desk, a clear mind and keep your business on the right track.

Want the Profit Roadmap for Free?

Bonus Content: Price your services correctly so you always know if you make a profit.

Download the Profit Roadmap

Why You Should Keep Your Small Business Finances Organized

Let’s face it you would rather risk a trip to the dentist than to get your small business finances organized. Maybe you even think that the dentist is fun. If you do decide to take on the challenge of organizing your small business let these be the reasons that you choose.

You’ll make tax season a LOT less stressful
You’ll become more financially aware and it will improve your money management, which in turn will help you make better decisions.
It will help you keep an eye on your cash flow, budget, and your expenses so you know where to spend your money and where to cut back.

Let’s get you organized and on your way and then we’ll work on keeping it organized throughout the year.

Step 1: Organize Your Paper and then Digitize it

The first step is always the hardest, but you got this and really, it’s not so hard.

Stuff You May Need

Cloud Storage (i.e. Dropbox or Google Drive)
Filing Cabinet or a 12 Pocket Folder (1for each year)
Label maker or Sharpie Pen
Manilla folders and hanging folders
3 Empty shoeboxes

Andrea's Tip

If your organizing for more than one year and you are using a 12 Pocket folder make sure you have 1 pocket folder for each year.

Paperwork You Need to Keep on File

ATM Receipts
Deposit records
Deposited Checks
Bank, loan and credit card statements
Tax Returns and other tax documents

Create Your System

Organize your digital cloud storage just like your filing cabinet. (Assuming you’re not going totally paperless).

Create a Folder for each year
Create a folder for each month
Create an Annual folder

See that wasn’t so hard. Repeat for each year. On your computer, this will look like

I love color-coding by quarter but that’s not something you have to do.

Now it’s time to put that paper in the right box. I know you were asking your self why boxes. This is why. I like to sort through the piles first and get them int the right order. It makes filing so much easier.

Time to start sorting: 1 box is for receipts and bills received. One box is for bank statements and loan documents. 1 box if or Tax returns and other IRS documents.



Andrea's Tip

If you’re looking to go paperless it’s time to get out your phone and start taking pictures of everything. Or if you have scanner start scanning them in. Then download to your computer. Then you can start filing them in by month. This may take a while especially if you have a lot of documents and receipts. Quicker to just file the paper but it’s up to you.

Organize Receipts and Bills

Take the receipt box and start sorting. Since receipts can sometimes be small use an envelope and stuff that. Write the month on the outside.



Andrea's Tip

You need to keep your receipts for at least 3 years. And though auditors will use your bank statement sometimes they want to see the receipt to.

Automate it!

I love good tools! Below is a list of both paid and free tools you can use to keep your receipts and bills automated.

Paid Receipt Trackers

Free Receipt Trackers

Evernote
Google Keep
Google Drive

Andrea's Tip

If you have receipts going to your email inbox you’ve just made life a little bit easier for yourself. Set up a filing system or label system in your inbox that is the same as above. I like to make copies and keep them in my google drive folders but sometimes that can be a hassle. I label it and then once a week I make copies and upload them.

Organize Bank, Credit Card and Loan Statements

If your bank is like my bank I can go and download my statements from the bank itself. No more paper copies for me. When I reconcile my accounts (yes, I actually do this). I upload the statements to my google drive. Most banks keep anywhere between 1 and 3 years online. Older then that they don’t keep them. I like to make it a habit to download them just in case I need to them.

Check on your loan statements and make sure they line up.

Tax Returns and Other Tax Documents

You must keep your tax records for a minimum of 6 years. Nowadays with efiling tax returns, you should have an electronic version. If using something like turbo tax or H&R block software, make sure you keep a copy.

Tax Documents that you’ll need to keep

1099s you receive or send
Your Annual Tax Return
W2s
I9s
Partnership and Business Organizational documents
Payroll
Estimated tax receipts



Andrea's Tip

Identity theft is very real don’t keep sensitive and private information on a free cloud drive. They are easy to hack and then your information is exposed. You can check out our article on Tax Identify Theft here.

Step 2: Organize Where Your Money Comes From

The most fun part of this step is to figure out where your money is coming from. Ask yourself a few questions

Are you currently an employee? That means salary. You should list it but separate from your business.
Do you sell services? Packages bundled together.
Do you sell products? How many and how many variations.

If you’re an eCommerce store that means listing all the products you sell and all the variations of products you sell. For example, let’s say you sell Widgets in different.

Example of a Service Product List

Product	In stock Inventory	Units	Selling Price	Cost of Product	Profit Per product
Widget 1, Pink	10	Ea	5.00	2.5	2.50
Widget 1, Yellow	5	Ea	5.00	1.5	3.50
Widget 2, Something different	50	Ea	10.00	3.00	7.50

Example of a Service Product List

Service	Selling Price	Cost of time/or Labor	Cost (set your minimum hourly wage)	Profit Per Service
Life Coaching Monthly product	500.00	4 Hours per month to client	$100.00	$100.00

This may be a bit different depending on the service or products that you sell. If you really want to know how to price your products check out our article on Pricing: Art or Science here.

You can also download the Profit Roadmap which has a spreadsheet that will help you price your products and know that your making a profit here.

Automate it!

Paid

Quickbooks and Xero both have product forms that you can create which will help you track your products and services. They are not the most robust when it comes to inventory products but it is a simple way to get started.

Free

Create a spreadsheet or Google Sheets. Just make sure you keep it updated.

Step 3: Map Your Business Expenses to Keep Your Finances Organized

There are two to three different types of expenses

Loans and Credit Cards that you need to pay
Bills from Vendors like contractors you hire to do work
Day to Day expenses like software subscriptions you have to various services

Let’s start by breaking them down into three groups

Now create a quick spreadsheet that looks like this:

Loans and Credit Cards	Payment	Total Amount Owned
Credit Card 1	$300.00	$5,000.00
Loan 1	$250.00	$10,000.00

Fixed Expenses
Rent	$1,000.00
Software Subscriptions	$35.00

Variable Monthly Cost
Contract Labor	$1,500.00
Material	$125.00

Oh, Look You just made a budget too!

Bonus! you just made your chart of accounts also known as categories.



Andrea's Tip

If you have had variable costs just try to average the monthly costs for example if you buy material three times a year and spend 500.00 each time average the cost to get your monthly amount.

Formula

3*500/12 = 125/monthly cost

Step 4: Track Your Business Finances Daily, Weekly and Monthly to Keep on Track

Use your system that you’ve set up. Try to keep up with it with daily, weekly, monthly and quarterly tasks so you can stay on top of your finances.

Automate what you can so you stay ahead of the game and make better decisions about your business like what products to keep. What is selling like hot cakes.

Get help when you need it. Finances can be hard you may need to get some help or an outside perspective. Feel free to join our Facebook Group Mind Your Own Business – Powered by Accountable CFO to get answers from a group of like-minded business owners just like you.

Want the Profit Roadmap for Free?

Bonus Content: Price your services correctly so you always know if you make a profit.

Download the Profit Roadmap

Putting it All Together

Getting your filing, paperwork, and finances in order will help you, in the long run, to make better decisions about your money, your time and your business. You don’t have to be a financial wizard to be in control. Use the steps above along with the profit roadmap and good budget and you’ll find that you’ll be clearer on what you need to do next.

If fear is holding you back or your confused about what to do. Then maybe it’s time to talk to an expert. We’d be thrilled to have you Make an appointment today!

Just remember

You Got This!

Andrea

New Tax Brackets for 2020

It’s always a bummer when the IRS releases the new tax brackets for the next year. Most of my clients will ignore the new tax brackets until, well, tax season. To get a jump and to figure out some tax planning for next year let’s see how they’ll affect you, your family, and your business.

By understanding where you fall in the brackets can help you plan how you want to contribute to your retirement, how to take deductions that reduce your liabilities so you can fall into a lower tax bracket. If you’re unsure what deductions, you can use you can check out the Big Fat List of Tax Deductions or one of the end of year tax strategies to save you some additional money you can check those out here and here.

You must use these tips before the end of the year so let’s get started right away to ensure you don’t pay next year.

There are only two certainties in life: Death and taxes ~ Benjamin Franklin

Free Ebook: Grab the Big Fat List of Small Business Deductions: Save money throughout the year with the Big Fat List of small business tax deductions. Use it as a reference all year round to save big at tax time.

Grab the Big Fat List Here

Understanding 2020 Tax Brackets

First let’s explain that the money you earn is not taxed in whole according to the tax brackets. For example, if you earn $70,000 in 2020, all your income will be taxed at 22%.

That is not true. In the US we have what is known as a progressive tax system, meaning that only the income that falls within a tax brackets range is taxed at that rate.

For example, let’s say you’ve earned $70,000 took 15,000 in tax deductions then your taxable income is $55,000.

So, to follow the tax bracket on the taxable income goes as follows if you’re a single filer

Single Filers
Income	Tax Bracket	Taxable Amount
The first 9,875	10%	$987.50
The Next $30,250	12%	$3,630.00
The remaining $14,875	22%	$3,272,50

Total Tax Liability		$7,890.00

Confusing right?

I’m not saying you should necessarily figure out these numbers. But it helps to understand what your marginal and effective tax rate is to determine planning and reducing tax liability. A little planning on your part can help you save money on taxes.

Marginal and Effective Tax Rate

If you’re using a CPA or an accountant, they should be able to tell you your Marginal tax rate and your effective tax rate. But if you’re doing your taxes solo you might have to figure it out yourself.

The marginal tax rate is the highest tax rate that you paid. In the example above your marginal tax rate would be 22%. If this confuses you just think of it this way. Your marginal tax rate is the tax rate you paid on the LAST dollar you earned.

Your effective tax rate is the average tax that you paid overall. If you add up all your taxes and the percentage, you would be paying an effective tax of $14.3%.

I always recommend that you understand your marginal and effective tax rate for your current year so you can do a little planning.

There is a large jump between the 22% tax bracket and the 12% tax bracket yes there is only a dollar difference between them. If you’re borderline. Let’s say you’re at about 45,000 of taxable and you want to lower your income to be in the 12%. And you haven’t set any money aside for retirement it might be helpful to plan to contribute to your 401k, or an IRA to reduce your tax liability to 12%.

Or if you’re already in the 12% tax bracket you might want to contribute some of your retirement to a ROTH IRA instead of a 401K because you’ll pay fewer taxes when you retire.

Another way understanding can help us to update your W4 based on next year. Let’s say you know you’re going to be in the 37% tax bracket you could start by increasing your contributions to your retirement. If you’re already at the maximum it might be time to start planning what deductions may apply to you and how you can take advantage of them for 2020 to reduce them.

Tax Brackets for 2020

Single Filers
Tax Bracket	Minimum	Maximum
10%	0	9,875
12%	9,876	40,125
22%	40,126	85,525
24$	85,526	$163,300
32%	$163,303	$207,350
35%	$207,351	$518,400
37$	518,400

Married, filing jointly
Tax Bracket	Minimum	Maximum
10%	0	$19,750
12%	$19,751	$80,250
22%	$80,251	$171,050
24$	$171,051	$326,600
32%	$326,601	$414,700
35%	$414,701	622,050
37$	$622,050

Married, filing jointly
Tax Bracket	Minimum	Maximum
10%	0	$19,750
12%	$19,751	$80,250
22%	$80,251	$171,050
24$	$171,051	$326,600
32%	$326,601	$414,700
35%	$414,701	622,050
37$	$622,050

Married, Filing Separately
Tax Bracket	Minimum	Maximum
10%	0	$9,875
12%	$9,876	$40,125
22%	$40,126	$85,525
24$	$85,526	$163,300
32%	$163,303	$207,350
35%	$207,351	$311,025
37$	$311,025

Head of Household
Tax Bracket	Minimum	Maximum
10%	0	$14,100
12%	$14,101	$53,700
22%	$53,701	$85,500
24$	$85,501	$163,300
32%	$163,303	$207,350
35%	$207,351	$518,400
37$	$518,400

Grab the Big Fat List Here

Putting it All Together

Understanding the tax brackets for 2020 helps you make better decisions when it comes to your money. Figure out and understand your marginal and effective tax rate to find planning strategies that reduce your tax liabilities.

Use extra savings on taxes to make contributions to your retirement which will, in turn, reduce your taxes.

If you need a little help and are unsure of what will help you we’ll be happy to review your last tax return for free to help you find additional savings and deductions. You can schedule an appointment here

If you need some help making some tax plans. Make an appointment today!

Happy Holidays!

Andrea

5 Actionable End of Year Tax Hacks

It’s a bit of an oxymoron to believe that the IRS will give you money back if you don’t owe any taxes. But if you do owe some money here are a few strategies that can reduce the money you may owe.

You must use these tips before the end of the year so let’s get started right away to ensure you don’t pay next year.

Tax Hacks 1: Prepay Expenses

Did you know that the IRS lets you pay expenses for next year and then you can deduct them for this year? Now you can only prepay 12 months of qualifying expenses under the safe-harbor rules so don’t try and pay two years of lease payments for your vehicle as it won’t count.

To use the safe harbor rule, you need to be a cash-basis taxpayer, meaning you recognize your expenses when you make them.

You would use this if you have a big tax bill. So, if you’ve figured out that you may owe a bunch of money because you make some money this year then go ahead and pre-pay.

Let me give you an example of how this works.

Let’s say you did an estimate on your taxes and based on last year’s return you ended up owning $10,000 to the IRS. You don’t want to pay that much so you can pre-pay some expenses.

You pay $1500 a month for rent and you would like to get a deduction this year. So on December 31, 2019, you mail a rent check to your landlord to cover six months’ worth of rent. Your landlord does not receive the payment in the mail until Thursday, January 2nd.

You deduct $9,000 in 2019 (when you paid the rent

Your landlord will report his earning in 2020 when he received the money.

You’ve now reduced your taxable income by 9,000 so you only owe $1,000 for 2019. Your rent is paid for the first six months of the year. Your happy because you didn’t have to give the IRS money, your rent is paid for six months. Your landlord is ecstatic because he has money and he won’t have to worry about your being late with your rent.



Andrea's Tip

Make sure that you let your landlord know what’s going on so if he by chance receives the check-in 2019, he would have to pay taxes on it so don’t screw your landlord.

Qualifying expenses include things like lease payments on vehicles, rent payments on offices and machinery, and even insurance premiums.

Just a Note

Proof is a big thing with the IRS make sure you when you use USPS online tracking and then make sure you print out or save to the cloud the delivery and receipt tracking results. Don’t let it disappear.

Tax Hack 2: Stop Billing Customers, Clients, or Patients

It may seem weird but if you need to reduce your income the best way is to not invoice or bill your clients until next year. Most of your clients won’t pay until they get an invoice so if you don’t send it they probably won’t pay.

If you wait to bill your clients until January, you don’t have to recognize the income until 2020. Please note you must be a cash basis for this to work.

Tax Hack 3: Upgrade Computers or Equipment

Bonus depreciation is a 100 for 2019 so if it’s time to upgrade your computers if you buy them before December 31st you can take 100 depreciation this year to reduce the cost. You can check out the strategy for bonus depreciation in the Big Fat List of Small Business Tax Deductions for more information on how it works.

Tax Hack 4: Use Your Business Credit Cards to Office Supplies

Most businesses still have some office supplies that are needed next year and beyond. If you need a bunch of paper and use your credit card at the end of the year you can deduct the expenses right away. At least for a single-member LLC or sole proprietor filing a Schedule C for your business.

If your business is a corporation and the corporation have a credit card in the name of the corporation the same rules apply.



Andrea's Tip

Do not use your personal credit card, please.

Tax Hack 5: Don’t Assume You Have Too Many Deductions

It may be that your business deductions exceed your business income which will mean you have a tax loss for the year. A Net Operating Loss (NOL) is not uncommon in a brand-new business or even with an ongoing successful business.

Before the Tax Cuts and Jobs Act, you could carry back your NOL for two years and get immediate tax refunds. Now, you can only carry your NOL forward, and it can only offset up to 80% of your taxable income in any one future year.

For example, let’s say you have an NOL of 5000. Next year you have a taxable income of 10000 you can write up 5000 off your taxable income. But if you have 3000 taxable income in 2020 you can only write off up to 80% of the 3000.

Don’t be worried about deductions and you should NEVER stop documenting them and claim all your rightful deductions. Just because you can’t use them now doesn’t mean you can’t use them in the future when they change the tax laws again.

Putting it All Together

When it comes to taxes, business deductions are king just like cash. The more deductions you can claim, the better because you’ll pay fewer overall taxes.

Claim all your legitimate deductions you can’t have too many and don’t avoid deductions that you think could be a red flag. First, it’s unlikely you could have enough deductions to create a red flag. Second, no one knows what those flags are. Third, if it’s a deduction is legitimate, and you have the documents to back it up, it doesn’t matter if the IRS audits you’ll win.

If you need some help making some tax plans. Make an appointment today!

Happy Holidays!

Andrea

« Older Entries

Next Entries »

What You Don’t Know About Your Break-Even Point Will Kill Your Business

Why You Need to Know Your Break-Even Point

When and How Often You Need a Break-Even Analysis

1. Starting A New Business

2. Creating a New Product

3. Adding a New Sales Channel

4. Changing Your Business Model

4. Changing Your Pricing Or Reducing Costs

What is a Break-Even Point

How to Determine Your Break-Even Point

1. Gather Up Your Data

2. Find Your Variable Costs

Andrea's Tip

Putting it All Together

The 4 Rules of Money Every Small Business Should Know

Money Rule 1: Know Where All Your Money Is

Andrea's Tip

Andrea's Tip

Money Rule 2: Set Aside Money for Taxes (and Other Long-Term Obligations)

Want the Profit Roadmap for Free?

Money Rule 3: Embrace Your Real Expenses

Money Rule 4: Prepare for the Down-Cycle

Putting it All Together

Want the Profit Roadmap for Free?

How to Crack the 1099-NEC Code

What the Heck is Cost of Goods Sold?

No Results Found

4 Steps to Organizing Your Small Business Finances Fast

Want the Profit Roadmap for Free?

Why You Should Keep Your Small Business Finances Organized

Step 1: Organize Your Paper and then Digitize it

Stuff You May Need

Andrea's Tip

If your organizing for more than one year and you are using a 12 Pocket folder make sure you have 1 pocket folder for each year.

Paperwork You Need to Keep on File

Create Your System

Andrea's Tip

Organize Receipts and Bills

Andrea's Tip

Automate it!

Andrea's Tip

Organize Bank, Credit Card and Loan Statements

Tax Returns and Other Tax Documents

Andrea's Tip

Step 2: Organize Where Your Money Comes From

Automate it!

Step 3: Map Your Business Expenses to Keep Your Finances Organized

Andrea's Tip

Step 4: Track Your Business Finances Daily, Weekly and Monthly to Keep on Track

Want the Profit Roadmap for Free?

Putting it All Together

New Tax Brackets for 2020

Understanding 2020 Tax Brackets

Marginal and Effective Tax Rate

Tax Brackets for 2020

Putting it All Together

5 Actionable End of Year Tax Hacks

Tax Hacks 1: Prepay Expenses

Andrea's Tip

Just a Note

Tax Hack 2: Stop Billing Customers, Clients, or Patients

Tax Hack 3: Upgrade Computers or Equipment

Tax Hack 4: Use Your Business Credit Cards to Office Supplies

Andrea's Tip

Do not use your personal credit card, please.

Tax Hack 5: Don’t Assume You Have Too Many Deductions

Putting it All Together

You Should Follow Us On Social Media

Categories

Recent Posts

Where Should We Send Your Profit Roadmap?

You have Successfully Subscribed!

Where should we send The Big Fat List?

The Big Fat List is on its way! Check your email.

Where should we send The Profit Road Map?

The Profit Roadmap is on its way! Check your email.

Where Should We Send the "Accountable Plan Template"?

Your Accountable Plan and Calculator are on the way!

Where Should We Send the "Direct Labor Cost Calculator"?

Your Direct Labor Cost Calculator is on the way! Check Your Email for instructions.

**Money Rule 1: Know Where All Your Money Is**

**Money Rule 3: Embrace Your Real Expenses**