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Small Biz Accounting Tips, December 2015
December 05, 2015

In this months edition:
Home Office Deduction regulations
Is it an Asset or an Expense?
Why you need an accounting system.
Ready? Let's go!

Home Office Deduction regulations

Do you run your business out of your home?

Even if you do your work at the customers place of business or someone's home, if you don't have an actual store or office, you can claim the home office deduction, under certain conditions.

If that's where you do your paperwork, keep files and/or inventory or equipment, if you greet customers there, if you take phone calls there, etc., you can claim a portion of your home for the home office deduction.

The IRS allows you to deduct certain expenses - a portion of rent, electric and heat, internet, phone costs - as a business expense.

You take the area you use for business, if it's a whole room or part of a room or even your garage, calculate it's percentage of your total home square footage, and use that percentage of your home costs.

There is another option, though. It's called the Simple Option, and you can opt to use this method - you use a standard deduction of $5 per square foot of your home used for business - up to 300 square foot.

The IRS requires that you be able to prove that you use the space regularly for business, and that it's used as your principal place of business.

So check into it if it applies to your business.

Is it an Asset or an Expense?

Certain items or services you purchase must be Capitalized, not Expensed.

What does this mean?

Capitalized means that item you purchased is treated as an Asset, and Depreciated each year it's used until it's useful life is used up.

So instead of expensing the entire purchase of a new computer system, for instance, you would "capitalize it", post it as an asset (Computer Equipment) and expense (Depreciation Expense) a portion of the cost over its useful life, like 7 years.

Buildings, of course, are treated as business Assets, as are vehicles used by the business, equipment, furniture, computers, phone systems, heating systems, etc.

But so are major building improvements, improvements to a leased space, start-up costs for a new business, and major improvements to a business property, like sidewalks or parking lots.

And computers, equipment, furniture, and things like that are considered Assets as well.

These items all have a useful life - designated by the IRS, and need to be posted as an Asset in your accounting system.

Let your tax preparer know that you've purchased business assets, so they can figure out the depreciation for you. If you'd like to read up on it yourself, go to and search for 'depreciation'.

Some businesses have a system in place for designating 'expense' or 'asset'. For instance, a large business may consider $500 and under to be an expense, and anything over that threshold to be an asset.

Consider the life of what you've purchased. A phone may last 5-7 years, but a printer may only last 1 or 2. Also consider the cost of the product. If your business is small, you may think $50 and under is an expense, and over that is an asset.

What's the benefit of posting it one way or the other?

An expense gives you the deduction off your income rigt away. But an asset gives you something tangible on your Balance Sheet. Enough assets will show a bank that you have collateral for a loan.

Sample Journal Entries for Year End Gifts

Are you thinking of purchasing company calendars or other promotional products like pens or mugs to give your employees / vendors / customers?

You would post that cash disbursement to “Advertising Expense” because they have your company info on them and the products are meant to reinforce your biz presence and even to bring in new sales.

You would post the entry like this:

Debit:Advertising Expense....$250

Thinking about giving gifts to your employees? Or giving gifts to your top customers?

The IRS has some specific thoughts on this. (You're surprised, right?) There's a $25 limit per customer or employee. What can you give for $25? Hey, I just relay the facts. You can give a turkey, a gift basket, a bottle of wine, etc. Giving more than that? Then it's taxable to them.

Check this out on the IRS website: pdf/p463.pdf

A New Year and a New System

Is your checkbook your accounting system?

You may want to consider upgrading to a system I’ve created. It uses a simple Cash Receipts Journal and Cash Disbursements Journal to record your business activity each month.

These journals can be created on paper or in Microsoft Excel (or the Open Office free version), whatever works best for you. They need not be complicated or fussy.

But you can pack a lot of info into these journals, and get a lot more information that just a checkbook entry. And, from these journals it’s an easy couple of steps to an Income Statement.

Check out my navigation panel on the left of the screen and click on 'Cash Management' for more information on these journals.

If you're looking for a little more help getting started, I've developed an e-course on setting up your own bookkeeping.

The course will cover some accounting basics (no accounting speak, I promise!), setting up a chart of accounts, setting up your journals (cash receipts, cash disbursements) and then finishing up a month and preparing a balance sheet and income statement.

It also covers payroll basics for those of you paying yourself (S-Corp Owners you better be doing this) or paying employees.

I'll walk you thru each step with examples and diagrams.

And, you can also choose to purchase a consultation with me, or even unlimited emails with me for a month. So basically I'll be there with you the whole first month, as you work thru setting up your journals to upgrade to a new, better bookkeeping system!

How cool is that?

I'd love to help you get started on a new system!

I think you're going to love it! Not everyone needs or wants to purchase a computerized system. If you're just using a checkbook, this is just a step up, and it'll help you out a lot.

You'll have so much more information at your fingertips, and, after using this system all year, your business tax return will be a breeze!

If you're interested in this course, send me an email BEFORE Dec 15, and get the course for HALF OFF!

I can only offer this discount for the next 11 days, so don't wait to send me your email. Tell me you want the course at HALF OFF, and I'll send you your discount code on Dec 15.

Don't wait. Email me now!

Satisfaction is guaranteed. At the end of the course you'll be keeping your own books! And you have lifetime access, so if you want, you can go thru the course multiple times, as needed.

Courses in the works are Keeping Track of Inventory and Invoicing and Receivables. I'll let you know when these will be available.

Well, that's it for this months newsletter.

I'll be back next month with more news and tips to help you with your small business bookkeeping.

Take care!


PS: Please feel free to let your fellow small biz owners know about this newsletter! Forward this newsletter or send them to my sign up page - it's the last button on my navigation panel.

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