- Apr 13, 2004
- 3,784
- 40
I just found out something rather interesting when I had my taxes done.
A word of warning for those of you who do give away free stuff.
If you give away a $30.00 product or discount, you can only claim $25.00 of it as a "Consultant Gift". I figured this then, claim the $25.00 under the "Consulant Gift" heading in the Income & Expense heading then claim the additional $5.00 under show expenses. WRONG!!!! If you were to ever get audited, this will cause a problem. It is NOT a legitamit expense then because you can not prove it as something it is not. If you exceed the $25.00, you have to "eat" that cost. So don't do it. Keep ALL discounts and gifts, whether they be to a host or guest, to under $25.00.
Something else I learned is that if you own a business like ours and you continuely show a loss year after year for about three to 4 years, you increase the possibility of getting audited from 0% to 75% or 80%. The IRS feels that if you are in business and do not carry an inventory or personell expenses, you should be able to start showing a profit within 3 years. Start up costs should be done. So do not get carried away with expenses if you are not doing much business. As a "hobbiest" for the first 4 years, I am in that 80% possible audit range as I have yet to show a profit. My tax guy said this is not good. So he suggessted simply not buying anything "new and great" to help my business for a year or two and to try very hard to show a profit this year and next. This will break the cycle of loss and the IRS should not put a flag on my account. So, keep an eye on those reciepts and do not get carried away with practice recipes and other things that could get you in very hot water. Remember too though that if you do keep your records straight, the only thing an audit should cost you is time.
Here is a guideline that my tax guy gave me as far as certain expenses go.
1) Electronics: You should figure any large electronic device such as a computer, computer component meaning printer or monitor, laptops, or laminators should last approximately three to 6 years. A computer of any type is usually depreciated over 5 years.
2) Recipe testing expenses for shows, should not exceed 2 testing recipes per show. (Concidered training expenses.) (Training does not just mean conference or leadership.) You can try out 7 recipes you may use for shows per week but check the number of shows you do and only record 2 of those receipts per show. In other words, you could test recipes 365 days a year. If you do 100 shows in that year, only record 200 of those as training expenses. This is majorly excessive too though so two per month is more the ideal.
3) Meals expenses. If you are out of town for a meeting, three meals per day are the norm. (Yes, you can record the cafe latte from Starbucks!!) If you travel for a show, one meal should be recorded if you do stop for a bite. (I like to make sure I have had something to eat before a show so I am not tempted to lick my fingers during a show!) Ew, I am kidding but that is a help strangely enough. It gives you energy to get through a show as well as helping curb any bad habbits we do have at home from showing up while cooking at someone else's home, licking figures, scrapers or tasting. And get this! People who do "food" orientated demos for aliving, should NOT be hungry when doing that demo. If you are, the tendancy then is to concentrate on the recipe before us instead of what we are selling.
4) Training expenses themselves, and I never though of this one. I know someone who owns their own business who recorded their travel and hotel and materials purchased as one training expense from a conference they attended. Do not do this. Different catagories are needed here as the IRS deduction percentages can be different per deduction type. Travel if by car should always be done in miles. This will cost you money if you put it in as a training cost. Tolls count and train travel is a seperate heading on your taxes. This again means it probably has a different deduction rate. Hotel rates too I think my guy said are deducted at a slightly higher rate than the books you might buy at conference. And meals too are deducted at a different rate as well. So do not be lazy, seperate all the expenses from conference, you'll get more bang for the buck. And remember too if you are like me, record the $3.95 cookbooks at the checkout as training expenses, but only if you actually use them for a show or two.
Just do keep in mind though, if you do not actually use something you purchased for your business, do not record it.
If you can, get an expense book from the people who did your taxes or make a list of the expenses that appear on your prepared taxes from the listing for the 1099 deductions. Add these to the list provided in Pampered Partner so they are all there. This will show you all the catagories you can decuct under as a business owner.
And by all means, do not over spend. The IRS does not like it when we show losses for too long and they really don't like it when they feel they did not get enough of our money! (But I degress to politcal there.) And with that I close.
A word of warning for those of you who do give away free stuff.
If you give away a $30.00 product or discount, you can only claim $25.00 of it as a "Consultant Gift". I figured this then, claim the $25.00 under the "Consulant Gift" heading in the Income & Expense heading then claim the additional $5.00 under show expenses. WRONG!!!! If you were to ever get audited, this will cause a problem. It is NOT a legitamit expense then because you can not prove it as something it is not. If you exceed the $25.00, you have to "eat" that cost. So don't do it. Keep ALL discounts and gifts, whether they be to a host or guest, to under $25.00.
Something else I learned is that if you own a business like ours and you continuely show a loss year after year for about three to 4 years, you increase the possibility of getting audited from 0% to 75% or 80%. The IRS feels that if you are in business and do not carry an inventory or personell expenses, you should be able to start showing a profit within 3 years. Start up costs should be done. So do not get carried away with expenses if you are not doing much business. As a "hobbiest" for the first 4 years, I am in that 80% possible audit range as I have yet to show a profit. My tax guy said this is not good. So he suggessted simply not buying anything "new and great" to help my business for a year or two and to try very hard to show a profit this year and next. This will break the cycle of loss and the IRS should not put a flag on my account. So, keep an eye on those reciepts and do not get carried away with practice recipes and other things that could get you in very hot water. Remember too though that if you do keep your records straight, the only thing an audit should cost you is time.
Here is a guideline that my tax guy gave me as far as certain expenses go.
1) Electronics: You should figure any large electronic device such as a computer, computer component meaning printer or monitor, laptops, or laminators should last approximately three to 6 years. A computer of any type is usually depreciated over 5 years.
2) Recipe testing expenses for shows, should not exceed 2 testing recipes per show. (Concidered training expenses.) (Training does not just mean conference or leadership.) You can try out 7 recipes you may use for shows per week but check the number of shows you do and only record 2 of those receipts per show. In other words, you could test recipes 365 days a year. If you do 100 shows in that year, only record 200 of those as training expenses. This is majorly excessive too though so two per month is more the ideal.
3) Meals expenses. If you are out of town for a meeting, three meals per day are the norm. (Yes, you can record the cafe latte from Starbucks!!) If you travel for a show, one meal should be recorded if you do stop for a bite. (I like to make sure I have had something to eat before a show so I am not tempted to lick my fingers during a show!) Ew, I am kidding but that is a help strangely enough. It gives you energy to get through a show as well as helping curb any bad habbits we do have at home from showing up while cooking at someone else's home, licking figures, scrapers or tasting. And get this! People who do "food" orientated demos for aliving, should NOT be hungry when doing that demo. If you are, the tendancy then is to concentrate on the recipe before us instead of what we are selling.
4) Training expenses themselves, and I never though of this one. I know someone who owns their own business who recorded their travel and hotel and materials purchased as one training expense from a conference they attended. Do not do this. Different catagories are needed here as the IRS deduction percentages can be different per deduction type. Travel if by car should always be done in miles. This will cost you money if you put it in as a training cost. Tolls count and train travel is a seperate heading on your taxes. This again means it probably has a different deduction rate. Hotel rates too I think my guy said are deducted at a slightly higher rate than the books you might buy at conference. And meals too are deducted at a different rate as well. So do not be lazy, seperate all the expenses from conference, you'll get more bang for the buck. And remember too if you are like me, record the $3.95 cookbooks at the checkout as training expenses, but only if you actually use them for a show or two.
Just do keep in mind though, if you do not actually use something you purchased for your business, do not record it.
If you can, get an expense book from the people who did your taxes or make a list of the expenses that appear on your prepared taxes from the listing for the 1099 deductions. Add these to the list provided in Pampered Partner so they are all there. This will show you all the catagories you can decuct under as a business owner.
And by all means, do not over spend. The IRS does not like it when we show losses for too long and they really don't like it when they feel they did not get enough of our money! (But I degress to politcal there.) And with that I close.
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