This month our guest blogger is Christina Amaral, a
Certified Public Bookkeeper & Tax Accountant.
Thanks for the ama-zing advice, Christina!
Being a business owner has SO many aspects to it outside of selling products. If you are like most people, tax time comes each year, and you find yourself thinking, “Holy s&*! – I am NOT ready!”
Hopefully, this guide of tips and tricks helps highlight some deductions that often are overlooked each year and help clarify them, so you are ready to rock your boutique’s taxes this year!
Cost of Goods Sold vs. Expenses
COGS – you may have heard this acronym before. It stands for “Cost of Goods Sold”. These are expenditures that are directly tied to the production of goods or services. This includes shipping, inventory, etc.
Operating expenses include everything else you spend to keep your business running – rent, utilities, advertising, office supplies, and everything in between. These are the expenditures that you will have regardless of your sales volume.
Automotive Expenses
If you use your vehicle to drive around for your business, you are to use it as a business deduction.
The most common is to use the standard mileage deduction. For this method, you track your starting mileage on January 1 and log your miles driven for each business trip throughout the year. You are allowed a deduction for the total miles driven at the standard federal rate – 57.5 cents per mile for 2020.
The other option is if you have a vehicle that you use 100% for business, you can write off the vehicle expenses, including interest on the loan, fuel, insurance, repairs & maintenance, and depreciate the vehicle as a business asset.
This is possible as well for a vehicle you use for less than 100%, but I recommend consulting with your CPA or tax professional on how to go about allocating your expenses between business and personal to maximize deductions.
Home Office Expenses
Chances are, most of you are starting or running your boutique out of your home – did you know that 90% of self-made millionaire women did it from home-based businesses?! Yassss girl!
You get to deduct a portion of your home expenses too for the space used for your business. The catch? The space needs to be used solely for your business. (i.e., you cannot use your dining room to package orders & then clear it off to eat dinner and write off the square footage of that part of the home). Suppose you have a designated home office (extra bedroom, garage, etc.). In that case, you can write off a portion of your rent, mortgage interest, property taxes, utilities, and any other expenses related to the business based on the square footage used.
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Merchant Fees
Shopify is one of the best platforms out there, and many of the Hot Mess clients use it.
By now, you have noticed that they charge fees on each transaction. While they do take away from your profit, you can claim these fees as a deduction on your taxes! A friendly tip - most CPAs / tax preparers will put these under expenses and not COGS.
Expense Categories
What should you be tracking throughout the year?
Here is a shortlist of categories to place your expenses into to help your CPA / Tax Preparer handle your tax return easier:
- Advertising & Marketing
- Bank Charges (overdraft fees, late fees, etc.)
- COGS
- Contractor expenses (make sure to issue anyone paid over $600 a Form 1099 at year-end)
- Insurance
- Interest (credit cards, business loans, etc.)
- Legal & Professional Services
- Merchant Fees (Shopify, Square, etc.)
- Office Supplies
- Rent & Lease
- Supplies
- Postage & Shipping
- Travel
- Meals
- Utilities
- Track larger expenses (over $2,500) separately, such as equipment, for the Section 179 depreciation expense. Refer to your CPA / Tax Preparer for more information on this.
- Please note that Entertainment expenses are no longer deductible under the TCJA (Tax Cuts and Jobs Act)
So there you have it! My top tips for tax season:-) I hope these help you!
About Christina:
Hey babes! My name is Christina, and I have worked in the Accounting world for about six years now. I started as a bookkeeper helping friends and family with their businesses, which is how I met Angela and the Hot Mess team!
I currently offer bookkeeping and tax services to several High-Net-Worth Individuals and small businesses through my employer & run my own bookkeeping Side Hustle. I love helping strong women gain financial independence and am passionate about helping others grow their knowledge and financial literacy.
